The Weekly Consensus – November 20, 2017 (Volume 9, Number 44)

The Big Story
Amazon Should Be Jealous
Marshall Schleifman

Most people are familiar with the concept of “Hallmark holidays” – celebrations that are perceived to exist primarily for commercial purposes.  Headlined by Valentine’s Day, Mother’s Day, and Father’s Day, and filled out with commemorations of Grandparents, Secretaries, Bosses and others, “Hallmark holidays” drive consumer purchases of cards and gifts to feed the corporate profit beast (in its defense, Hallmark officially disclaims credit for creating any holidays).  In fact, according to National Day Calendar, various interest groups, industry associations, and businesses now sponsor over 1,500 “national days” to attract attention and share-of-wallet.

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The Weekly Consensus – November 13, 2017 (Volume 9, Number 43)

The Big Story
The “Apocalypse” Will Hurt Women More Than Men
Michael A. O’Hara

In a well-researched article, a team of four Bloomberg writers (aided by five others) made it abundantly clear last week that things will likely get a whole lot worse for brick and mortar retail in the coming years.  If 2017 is the retail “apocalypse,” (a foretelling of the battle of good versus evil at the end of the world), these authors made the case that 2018 or 2019 may be retail’s “Armageddon” (the biblical site of such battle). In America’s ‘Retail Apocalypse’ Is Really Just Beginning published on November 8, 2017, the Bloomberg authors lay out both the number of recent store closings and the amount of debt that major retailers are carrying and will likely find difficult to refinance. They also note that institutional lenders are increasingly less comfortable with retailer debt as an investment asset class than previously, and they explore the growing amount of reserves taken by consumer credit companies as people fail to repay debts owed to bankrupt companies even though they are legally required to do so.  But among the parade of horribles detailed in the article was a passing reference to a phenomenon that may have broad social ramifications not yet fully understood by most in the industry: the shifting sands from brick-and-mortar retail to ecommerce will have a meaningfully worse impact on the employment of women than men – particularly at the low end of the wage scale.

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The Weekly Consensus – November 6, 2017 (Volume 9, Number 42)

The Big Story
Why Victoria’s Secret Isn’t Worried
Paul Alexander, CFA

 

News coverage of the retail industry has been dominated this year by bankruptcies, falling foot traffic, and the unyeilding encroachment of Amazon. So much of our attention has been drawn to the shift in spending from physical stores to the internet, that it has become tempting to judge a company’s future prospects through one simple, binary calculation: is this retailer heavily exposed to brick and mortar stores and malls? If yes, then its prospects are probably poor. If no, then perhaps it has a chance do well. According to this decision tree, L Brands, the parent company of the mall-based brands Victoria’s Secret and Bath and Body Works, may be in trouble. And recent events would seem to support that outlook. Sales at Victoria’s Secret have slumped recently amid discontinued product lines, millenials’ changing tastes, and new ecommerce-based competitors like Adore Me, True & Co, and Third Love. The stock market appears to have a pessemistic view of the company – shares of L Brands are off over 50% since the end of 2015. However, at the company’s annual analyst day last Thursday, L Brands reminded us that this binary decision tree is overly simplistic. Why? Because there is more to the world than U.S. malls and Amazon.

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The Weekly Consensus – October 30, 2017 (Volume 9, Number 41)

The Big Story
Halloween: When Things Get Less Scary for Retail
Maeghan Thompson

 

Halloween is a time when many of us like to use spooky decorations, costumes, and horror movies to give ourselves and loved ones a thrilling scare. When it comes to traditional brick and mortar retail, things are scary enough already. Shopping malls and department stores are struggling with declining traffic, many companies are closing underperforming stores, and 19 major retailers have filed for bankruptcy protection this year. However, this year’s Halloween season may offer the retail world a brief respite from the otherwise gloomy environment for a couple of reasons. Ironically, for retail, Halloween may be the least scary time of the year.

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The Weekly Consensus – October 23, 2017 (Volume 9, Number 40)

The Big Story
Will Stitch Fix’s IPO Be as Trendy as Its Clothes?

 

Last week, Stitch Fix, an online personal stylist and subscription apparel business founded in 2011, filed paperwork for its initial public offering. For many, this represents the latest “new consumer” brand to go public – and all that comes with it. While it marks the continued growth and evolution of emerging brands and the new consumer economy, it also opens the space (and the brands within it) to scrutiny.

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The Weekly Consensus – October 16, 2017 (Volume 9, Number 39)

The Big Story
A Public Lesson
Betsy White

Womenswear apparel retailer J.Jill reported some unexpected bad news last Wednesday about its performance in the current quarter ending October 28, 2017.  The update was so awful the Company’s stock price dropped by over 50 percent, causing the company to lose about $230 million in market value.  The negative reaction extended less dramatically to apparel retailers across the board, with many wondering whether the news is a harbinger of more widespread weakness in women’s apparel.

J.Jill’s news is not just a story about brick and mortar retail.  While the majority of the company’s sales are generated through its stores (the good news is that its store locations are primarily in “A” malls), it has a relatively high direct/ecommerce sales penetration of between 40 percent and 45 percent. On a comparable sales basis, J.Jill analyzes its sales performance holistically, only publishing combined store and direct comparable sales, which has been the primary driver of its overall sales increases.

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The Weekly Consensus – October 9, 2017 (Volume 9, Number 38)

The Big Story
2017 Holiday Sales: More Diamonds than Coal?
Billy Busko

 

75 days.  Yes, it’s hard to believe, but there are only 75 shopping days until Christmas.  And it’s that time of the year when prognosticators reveal their holiday sales forecasts based partly on recent back-to-school sales and a myriad of other factors.  For perspective, holiday sales account for roughly 20% of total annual retail sales.

As the second largest shopping season, forecasters have taken note of this year’s back-to-school sales increase of approximately 10% over 2016, totaling a record $84 billion ($30 billion for K through 12 spending and $54 billion for college spending).  The other factors that analysts weigh are typically economic inputs, but, of course, weather can also have an impact.  Weather Trends, a service that predicts weather for retailers, forecasts that Thanksgiving Day will be six degrees cooler in the Northeast and nearly twenty degrees cooler in the Midwest, which retailers will welcome, as an early chill tends to bolster sales.

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The Weekly Consensus – October 2, 2017 (Volume 9, Number 37)

The Big Story
The Cost of Competing Just Went Up
Mark Lenz

Last week, Target jumped into the retail industry’s starting wage wars by announcing that the company will increase its minimum wage to $11 per hour starting this fall and to $15 per hour by 2020.  This move certainly ups the ante relative to both Walmart (which announced starting wage increases to $9 per hour in 2015 and then $10 per hour in 2016) and other retailers that have announced starting wage increases in recent years. However, is Target getting ahead? Or is it making up ground?

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The Weekly Consensus – September 25, 2017 (Volume 9, Number 36)

The Big Story
When Less Is More
Paul Alexander, CFA

We here at Consensus published a short presentation last week called “15 Hot Takes on the Modern Consumer Economy.” The deck contained 15 slides, each with a different aphorism relating to the retail landscape or consumer behavior and a few supporting statements. One slide proclaimed, “We Are on the Road to Recovery from Our Inventory Addiction,” and the accompanying discussion spoke about new methods of improving inventory efficiency, including showroom stores and better systems for buying and planning. This was a theme in our colleague Doug Stebbins’s Big Story entry last week, where he wrote about Nordstrom’s new concept store, which will carry very little inventory, and will instead offer customers the personalized attention of stylists. Both the inventory Hot Take and the Nordstrom story frame the reduction of inventory as either a byproduct of new technology, or an experimental new method of retailing. However, a front-page article in the Wall Street Journal last week exposed that we’ve neglected to write about an infinitely simpler, low-tech method of controlling inventory that may be making a comeback: buying less inventory to begin with.

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The Weekly Consensus – September 18, 2017 (Volume 9, Number 35)

The Big Story
Running on Empty
Doug Stebbins

The economy continues to expand – jobless rates are at historical lows, consumer sentiment is strong, the housing market is hot, and the stock market is at all-time highs.  Then why are so many retailers struggling?  It is simple: the shopping habits of consumers have changed, and it has been hard for traditional retailers to adapt.  As ecommerce takes more and more market share, brick and mortar stores are fighting for a smaller group of shoppers.

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