Quarterly earnings news, especially from the lower end of the
retailing segment, makes it look as though we are possibly going
into a recession.
Shoppers at relatively high income levels are not feeling as much
economic pressure as others, so
) stores reported solid earnings, and results for
), while somewhat disappointing, were not really bad. The bulk of
American shoppers fall into lower-earning income groups, however,
and for them, these are troubled times.
In that area it is widely known that
) have been giving up market share and could well be in bankruptcy
within one to two years, even in the presently slow GDP growth
environment. Add in a recession and the situation gets even uglier.
For me, a longtime bear on the US consumer's situation, the
environment seems to be even worse than I previously thought. My
jaw dropped when a brokerage firm analyst did a study in the wake
of Ron Johnson's mistakes at JCP. The study showed that its lost
business went heavily to
) and off-pricers
(ROST) rather than to
(TGT). Being sure that I am savvier on this than Bill Ackman, I
have to believe I would have been right even three to five years
ago, and that this phenomena is a reflection of 14% real
unemployment. This quarter's results also show that Sears is in an
accelerated state of decline as its flagship appliance business is
in an accelerated decline; this shows in its numbers and in strong
same-store sales numbers at
Over in the teen area,
Abercrombie & Fitch Co.
(ANF) reported disappointing earnings and guidance. Reflective of
the weak economic environment, relatively lower priced Hollister's
same-store sales were markedly lower than flagship Abercrombie
(AEO) had very poor sales and lowered guidance two weeks ago.
(ARO) -- whose prices are far below those of Abercrombie,
Hollister, and American Eagle -- had very poor sales results as
well. While most investors know that Forever 21, H&M, and other
fast-fashion operators have been taking market share, especially
for women, things seem to have gotten worse in the economy, or
market share gains by fast-fashion operators are accelerating.
I saw one surprisingly disconcerting fact in Ross Stores' quarter:
Same-store sales grew 4% while juniors was one of the two biggest
areas of sales strength. Then remember that packaways (supplies of
last year's seasonal merchandise packed away for sale the following
year) are generally 40-45% of Ross' sales. So, some generally
style-slavish teens are willing to buy heavily into last year's
fashions to get lower prices than they can get at even the
Target has been pushing consumables to get people into the stores,
and in doing so has probably lost a bit of its cheap-chic image.
Kohl's gains over the past four to six quarters have been coming
only on low prices (which still have not helped the store gain any
real share of the disaffected Penney shoppers). Kohl's store brands
Candie's, Apt. 9, and others have not worked well with consumers.
The stores are too cluttered, the presentations are terrible, and
the color palette of the clothes is always off, looking somewhat
So, there is a lot of flux and market share to be gained by one of
possibly two operators. Who is most likely to get that share?
Not Wal-Mart. As bad as things are, people do have standards.
Wal-Mart might have had a small chance with the decluttered stores
of a few years ago, but since it brought back power-alley and the
10% of SKUs that it cut, the ambiance is terrible for shoppers who
were not loyal customers already even if Wal-Mart had some stylish
I just cannot believe that there's been a huge increase in the
number of people are willing to spend lots of time on "treasure
hunts," sifting through broken-sized clothing "assortments." So,
off-pricers are not likely to be the big winners here. Some
analysts believe that people will go to off-pricers for name brands
while others in the area are mostly using store brands. I discount
this. Many of the brands at these stores are almost made for the
off-pricers and the whole downscale area below Macy's is too big
for many branded clothing companies to not play in.
JC Penney could make it and pick up the pieces if Sears dies first,
but it would be a long, hard road and it's not investable now.
Sears will die, I believe, regardless of what happens at JC Penney.
I see Target as the most likely market-share winner. It can
resurrect its cheap chic with relatively little effort. It will
probably have to, as consumables are not providing the sales lift
it desires. Target will likely get a lift from the coming demise of
Kohl's will need to clean up its stores a lot and secure some
national brands that work. That can be done, but given the fact
that JC Penney customers did not flock there, I have to wonder if
the price-value relationship of its clothing was not good enough
for many consumers.
Based on what I see in teenland, and knowing that we have yet to
face crises about college costs and student debt, I would not be
surprised if Target and Kohl's picked up a lot of market share from
teen-oriented retailers based largely on price, especially if there
is a recession.