By Garrick Brown, Vice President of Retail Research, Americas
The party’s over, everyone’s gone home and the place is a wreck. You don’t feel so good and your head is throbbing as you try to piece together what exactly happened. Sure, this might accurately describe how you felt on the morning of New Year’s Day, but it’s also how a friend of mine describes this time of year for most retailers. My buddy, a buyer for a major department store chain, says, “regardless if the party was great or if it was a bust, the morning after is always rough.”
Of course, retailers already know exactly what happened and how they fared individually during the holiday sales season. But it’s trickier trying to figure out the market as a whole. Yes, we have plenty of anecdotes and observations and numbers from individual players keep trickling in. But for real, big-picture macro statistics we have to deal with a bit of a wait.
The Commerce Department (technically the Census Bureau) won’t be releasing their Advance Monthly Retail Trade Report until next Friday. December 2015 advance monthly sales totals for retail trade and food services come out on January 15th. Revised November sales also come out on that day. Those are the big picture numbers that most of us use when figuring out holiday sales performance. But those are hardly the only indicators of performance.
Here is what we know so far; J.C. Penney reports that their holiday season sales were up 3.9%. Signet Jeweler’s same store sales for the season were up 4.9%. Meanwhile, Barnes & Noble’s holiday sales fell by 0.8%.
There are plenty of other individual anecdotes if you just want to look at December same store sales. In fact, a slew of major retailers have released that data this week. You can check out detailed retailer-by-retailer data by clicking here. By the way, these come to us by way of our good friend Mike Palenchar of the MR Group. In addition to putting together this free monthly report that he shares with the industry, you can get on his mailing list by dropping him a line at email@example.com. Mike is also one of the top retail talent recruiters in the business. He’s been active in the industry since 1999 and he specializes in identifying top talent for mid to upper level positions in the retail and building industries nationally. He’s helped a lot of people I know some great positions and he is a good friend to the Newsline.
But back to the issue of December same-store sales… if you are trying to find a read on overall holiday performance, these are a mixed bag. Cato’s December same store sales were up 6.0%. Costco’s were up by 1.0%, and Conn’s sales were up 2.5%. At the same time, Zumiez same store sales for December fell by 8.9%. Buckle’s sales fell by 5.4% and Rite Aid’s numbers dipped by 0.1%.
Clearly a lot of these numbers back up the anecdotes that we have all heard. Apparel retailers and department stores had a rough time. Good weather throughout most of the country probably played into this, effectively cheating apparel players out of fall/winter clothes sales. Furniture and furnishings retailers did well. Consumer electronics stores had their strongest showing in years.
However, ultimately if you want to figure out where those overall Commerce Department numbers are going to fall next week… there is a report that has already been released that may be extremely helpful. MasterCard Advisors release their annual SpendingPulse holiday sales report every year in late December. Their report is not based on overall actual sales figures, but their methodology is based on aggregate sales activity in the MasterCard payments network, coupled with survey-based estimates for certain other payment forms, such as cash and check. The numbers exclude gas and auto sales.
For four out of the past six years, the MasterCard Spending Pulse figures have been above Commerce Department stats. What’s interesting is that their figures were well below Commerce Department stats in both 2011 and 2012. This was still during a period in which American consumers were largely paying down debt. While MasterCard’s stated methodology factors in estimates of consumer cash and check activity, the fact is that their hard data is based on credit card totals so you can’t rule out the fact that these numbers are heavily influenced by credit card usage patterns.
So, what exactly am I saying? I am saying that this year’s strong MasterCard numbers are a good sign overall. However, I can’t rule out that surging credit card usage might not be a factor here. Regardless, I forecast a 4.1% growth rate this holiday sales season—the same level of performance posted in 2014. The National Retail Federation predicted 3.7% and a lot of other analysts out there went lower. We won’t know for sure until late next week, but it appears the 2015 holiday shopping season will appear on paper (statistically, at least) to have been a fairly strong one.
But no one is going to be breaking out any champagne bottles on this news. In fact, the number you should pay most attention to in the MasterCard SpendingPulse report might not be that overall sales increase number of 7.9%… but that they found that e-commerce sales were up 20%. Comparing those statistics to the Commerce Department numbers is an apples-to-oranges comparison, but the Commerce Department’s e-commerce sales figures have consistently painted a picture of year-over-year e-commerce growth in the mid-teens for the past five years.
Clearly there was a surge in e-commerce activity during the 2015 holiday sales season. If we reach analyst forecasts this year (most ranged from 3.5% to 4.5%), it will have been on the back of this surge—not bricks-and-mortar activity. UPS and FedEx both expected increased deliveries and yet still struggled to keep up with this surge. I got dozens of anecdotal reports from friends around the country reporting both parcel services resorting to renting extra trucks for deliveries. I know I got a Sunday delivery the week before Christmas from a UPS guy driving a truck rented from Enterprise. Worse yet for bricks-and-mortar retailers, this year’s surge in e-commerce activity appears to be structural. It wasn’t weather. It wasn’t terrorism. It wasn’t any number of other potential environmental factors. It was convenience. It was the further evolution of distribution chains and faster delivery times. And it was improved websites and omni-channel retailing from merchants.
Worse yet, bricks-and-mortar activity was slow well into December. Activity surged in the final week before Christmas and may have broken records in the week between Christmas and New Year’s. But that is when pricing has already been slashed to bargain basement blow-out levels. So even if many retailers end up reporting 3.5%, 5.5% or even 7.5% year-over-year sales gains, these numbers don’t demonstrate the fact that margins were killed this year by the season’s soft start. For apparel players and department stores, you combine this with warm weather effectively cheating retailers out of an entire season and you get bad news….
The worst news of the week, of course, was Macy’s announcement that they will be closing 40 stores. The retailer experienced all of the trends I spelled out above this year and ended up reporting a 5.2% year-over-year decline in sales this holiday sales season. This is the first big closure announcement of the year but certainly won’t be the last. January through March is traditionally the retail closure season and this has been the case even in the strongest years. This is the time of year when retailers shutter their underperformers, right-size their portfolios and trim the fat. This is the reason why the industry puts such an emphasis on those holiday sales figures… holiday performance usually directly translates into retailer real estate needs.
But this year is going to be a little different. We are probably going to have pretty solid overall sales numbers. But this year’s retail closure season may be the worst that we have seen since the Great Recession.
Here is a telling sign; while there are many Macy’s locations slated for closure in struggling malls, the list includes a few spots in what I would consider solid Class B or B+ shopping centers. Until now, nearly all of that retailer’s closures have been weak, Class C locations. But all of the four or five (in my opinion) Class B locations being shuttered already have existing Class A or A+ Macy’s locations nearby. Make no mistake about it, I am convinced that even if Macy’s recorded 5.5% sales GAINS this year that most of the stores slated for closure would still be on that list. That is because this is about right-sizing in the new omni-channel world.
And that trend is going to drive closures across the board this year for the strongest and the weakest retailers alike. Apparel, hard goods, department stores… mall retailers in particular will all be active. I hope I am wrong, but I expect the closure news to be fast and furious starting over the next few days. Rest assured you will see a slew of “sky is falling” type articles and a whole lot of gloom out there.
This closure season will be worse than normal, but not the end of the world. In fact, most of the closures will be limited to a few retail categories… and there are an awful lot of retail categories out there that are still growing. Likewise, these closures are likely to impact only a few property types… neighborhood and community centers will hardly feel a blip. Space-constricted urban markets may actually benefit from a few vacancies. But sadly, even if this year’s holiday sales numbers turn out to be pretty darn good… it will be a short-lived and quickly forgotten victory.
This post is commentary from the latest weekly edition of our Cushman & Wakefield Retail Newsline, which you can subscribe to for free by e-mailing firstname.lastname@example.org.
Garrick serves as Vice President of Retail Research for the Americas for Cushman & Wakefield. He speaks frequently at industry events and has been a keynote speaker at symposiums, conferences and market forecasting events for groups like the Appraisal Institute, Urban Land Institute, CREW, ICSC and PRSM. He is also a member of Lambda Alpha International, an invitation-only land use society for those who are involved in the ownership, management, regulation and conservation of land, but also those who are involved in its development, redevelopment and preservation.