Friday, November 28, 2008

Only Black in the bleak, dark and gloomy sense of the word

I'm afraid they may have to rename today. Traditionally known as Black Friday because it was they day that most retailers finally made a profit for the year ('went into the black'), this year I'm thinking there's a little more red flowing than normal. The question of the day: Is that red ink or blood flowing through the mall?

As I do every year, I arose this morning at a time that would have been considered uncivilized anywhere in the country, regardless of time zone. By a little after 3am I was chatting with folks lined up outside Kohl's. I followed that up with a trip to Wal-Mart for their 5am opening, then to Target for their 6am opening, and finally a walk through the mall for Macy's, JC Penney, Sears, Nordstrom and all the specialty stores.

Without further ado, this year's view from the battlefield:
  • People are hurting financially and it's going to show in sales. 75% of shoppers interviewed are cutting back their spending for this holiday season significantly (anywhere from 30-90% cuts). Of the remaining 25%, most were just holding spending equal to last year, and the few who were spending more were generally in their 20s (no mortgage, little debt) and hadn't spent much last year.
  • Consumers are shopping for what's on sale: just having items FOR sale isn't enough anymore. The days of paying whatever you have to just to make sure that a is under the tree for the kids are just plain over. Most consumers were going to multiple stores to buy specific items in each location... and they were shopping fewer stores overall. This, by the way, defeats the purpose of doorbuster sales for the retailers, which are supposed to lure you in and get you to buy some non-discounted items also. The only exceptions to this rule were Wal-Mart shoppers. Wal-Mart management should be pleased to know that only one consumer interviewed in their line had any intention of going to another store after they were done at Wal-Mart. The 'save money, live better' message is resonating well with their consumers!
  • Lines are longer than in previous years, but there is less in the baskets and everything in those baskets is pretty deeply discounted. I was asked by a reporter today if that meant bad margins for the stores, and the answer is only a 'maybe.' I know that JC Penney and other retailers have been trying to increase margins anyway they can, including buying items with discounting in mind. An example would be a retailer knowing that their consumer needs to buy jewelry at a certain price point, say $100. Just like last year, the retailer will have items at that price point, but the quality of the item will be lower this year, allowing them to maintain margins.
  • There's no place like home. Once again, a lot more shoppers than I expected headed directly to the home departments at Kohl's, Macy's and JC Penney. Even though this stuff hasn't been selling well at full price, if you discount it they will buy.
  • Most surprising trend? This year it had to be the lack of a must have item. Sure, parents were buying video games and DVDs for their kids. But only a few parents mentioned the Guitar Hero as something they had to have. GPS units, MP3 players, cheap flat screen TVs were all mentioned as desirable by shoppers... but virtually no one said they'd pay full price to get them.
  • Most bags in the mall? This year it was a tie between Macy's and JC Penney, with Bath & Body Works getting special mention as the most prominent specialty retailer.
  • The winner of the 'You Think This Stuff is Going to Sell Itself?' Award is Abercrombie & Fitch. Apparently the corporate motto is 'Discounts? We don't need no stinkin' discounts.' Unfortunately, based on the lack of traffic and sales in the store, I beg to differ.
  • Biggest fall from favor award goes to Apple. I'm not saying they weren't selling anything, because I'm sure they were, but over the past few years the stores have been packed to overflow on Black Friday. Today? Not so much.

So, what do we do with all this information? I'm going to spend some time this weekend plowing through balance sheets, looking at corporate cash levels, and watching consumers. I firmly believe that today confirms that the holiday retail season is going to be as dismal as advertised, if not worse. I think there might be something to be said for shorting the retail index and pairing that with a long trade for a couple of high quality retail companies. Names to follow.

2 comments:

Cynde Jackson Clarke said...

Oh Goddes of Retail! Excellent summary! I was thinking of you this morning as I drove to Jo-Ann Superstore for the 6:00 a.m. opening. I am not a Black Friday shopper at all - I tend to associate it with being in a black mood vs. black ink flowing...Anyway, my report to you from suburban DC (I told you I wanted to work with you didn't I?)if as follows:
Driving past the Leesburg Premium Outlets, which were open at midnight last night, I saw evidence that the parking lots had been packed - cars parked on the grassy parts on the outskirts of the lots. As I went on to Jo-Ann's I was surprised though at the lack of traffic on the road at 6. Jo-Ann's was not packed as I feared it might be and I bought a ton of stuff and let's put it this way - the 50% off a full-priced item was used on one of the two $5 books I got for the kids - in other words nearly everything in my basket was reduced (40-60%) and then I got 20% off the entire purchase on top of that. Result - I got two of something that I would NEVER have paid full price for and went just to pick them up...$69.99 tiered storage racks on wheels marked down to $29.99 with the 20% off on top of that. I need these things to get the kids' and my craft and art stuff organized but not for $70. I find all of these organizer things are overpriced by the way - including bookshelves! But I digress....On the ride out to Leesburg I caught one or two radio stations reporting on traffic flow (or lack thereof) near some of the other major shopping sites in the area. When I left Jo-Ann's an hour and a half later the outlet lot was jammed again, not too many cars on the road yet though. I saw a traffic chopper hovering overhead taking it all in, I'm sure. At 11 I headed to the mall for a hair appt and was suprised and delighted to find a choice of parking spaces. My stylist told me the mall had opened at 7 and was full of folks who "looked like they'd been there a while" when he arrived at 10. I didn't think to notice which bags were being carried but now I know for next year! Signing off - I remain -
the East Coast division of Storehouse Partners!

Anonymous said...

As a frugal bargain-hound, I'll second your observations on Walmart. The Upstate NY Walmart I frequent was well-stocked, well-organized and the parking lot was packed at 5:30a.m.

People were politely searching through the $4 bins for bargains on Mario Bros, Xbox, and other character name pj bottoms, and standing politely in line for
$249 Nintendo Wiis.

There was a run on $9 vacuums too, with several people toting 6-10 in a cart. I'm guessing everyone on their gift list gets one!