November’s same-store sales were released yesterday, and retailer’s results were far from overwhelming. The International Council of Shopping Centers says sales overall were actually down 0.8% year over year for the month.
Dow Jones has a pretty comprehensive list of individual retailer performance, and there are a lot of duds. Saks plunged 26.1%. Abercrombie & Fitch fell 17%. Children’s Place dropped 13%.
The winners were pretty predictable, for the most part. Discounters Ross Stores and TJX Cos. were both up 8%. On the specialty apparel front Gap was flat (good results for it) and Aeropostale rose 7%. A nice surprise was Nordstrom’s 2.2% increase.
This isn’t exactly a great start to the holidays and makes us wonder if reports of a bounce back this year were a little premature. We’re betting a turnaround in the job picture is needed to help retail sales improve. What’s your solution?
Counter Culture 
No doubt that a turnaround in the job picture is needed to help retail sales improve over the long term. But I wonder if November’s poor numbers are a result of shoppers putting off purchses in anticipation of the holiday season (and holiday sales).
The consumer is focused on basics and value. Abercrombie really doesn’t fit the sort of place where you would find either so their sales are down.
If the recession does get worse then I begin to wonder how retailers like A & F and Banana Republic will fare. Will the consumer ditch brand name chains for bargain and discount retailers? I don’t see how a store like Guess, which had almost used its high pricing as a selling point, can weather this recession unless they restructure their business model.
As for solutions. . . I got nothing.
With 10.0% current unemployment, and 17% of the work force not emplyed or underemployed(those who have given up or have run out of benifits. I vannot imagine those comsumers buyimg much, other than necesities or replacemnt items.
Unemployment last year was at +/- 7% and sales swere dismal….with more jobs lost, the analyst who predicts otherwise is being paid by the retailers.
I’m a long term real estate professional and am producing income at 70% of an average year, so nowhere do we see disposable income numbers reflecting this factor either.
I’d love to be an optimist, but reality gets in my way!
Of these 31 retail chains, eight chains had declines in revenue that were in double digits. The two worst reporting retailers were Saks, Inc. at -26.1% and Abercrombie & Fitch at -17.0% declines. Only five chains reported revenue increases for November that were greater than 5.0%. They were Aeropostale at 7.0%, Ross Stores at 8.0% and TJX, Inc. at 8.0%.
These declines are even after the tremendous discounts, coupons, and incentives offered by these retailers. It appears that the number of transactions are also down in November year over year and that any price increases, if any, that the retailers may have been able to selectively add to their merchandise may have been eroded by the discounts, coupons, and incentives.
As an additional insight, one of the ten largest retail owners in the U.S., like most retail landlords, is experiencing significant revenue problems with its tenants. For example, of its approximately 22,000 retail tenants that are not considered as the anchor tenants in its centers, most are hemorrhaging red ink in their bottom line. These 22,000 tenants include every retailer that may be a national chain all the way down to the single mom-and-pop single store. One indicator of the retail industry’s health and the economy in general is the occupancy cost that the tenant pays as a ratio of its revenue to the rent it pays the landlord. Historically, this sales to rent ratio in the retail industry is usually below 10.0% if the retail tenant and the economy are reasonably healthy. Three years ago this rent to sales ratio for the approximately 22,000 non-anchored tenants in this large portfolio was at 10.3%. This same ratio for the end of the 3rd quarter of 2009 was more than 27.0%. This means that on average, every non-anchored tenant was paying more than 25 cents of every $1.00 in revenue as rent. This ratio is unsustainable and no tenant can afford to maintain this expense ratio for more than a few months without filing bankruptcy or going out of business.
This elevated rent to sales ratio is impacting every retailer in the country except maybe Apple with its retail stores in the malls. Check it out. Go to any large, upscale regional mall in the country where there is an Apple store. Walk the halls and count the number of customers in the Apple stores and compare this to the other stores in the mall.
Also, count the number of vacancies that are in these upscale regional malls. In Atlanta, Georgia when was the last time you saw 7 to 10 vacancies in the upscale regional malls such as Lenox Square Mall, Phipps Plaza Mall, Perimeter Mall, Cumberland Mall, and North Point Mall? What you are not able to see are the number of tenants that are not paying rent, are not paying their CAM charges (common area maintenance charges), or both. Nearly every retail landlord in the country is doing everything it can to keep the tenants that are still alive. Landlords are waiving or reducing rents, CAM charges, and finding ways to cut other expenses.
The recession is not over, inspite of what Ben Bernanke has publically said. The retail carnage will continue and during the 1st quarter of 2010 you will see many retail tenants close their doors. Count on it.
ECW
As an additional insight, one of the ten largest retail owners in the U.S., like most retail landlords, is experiencing significant revenue problems with its tenants. For example, of its approximately 22,000 retail tenants that are not considered as the anchor tenants in its centers, most are hemorrhaging red ink in their bottom line. These 22,000 tenants include every retailer that may be a national chain all the way down to the single mom-and-pop single store. One indicator of the retail industry’s health and the economy in general is the occupancy cost that the tenant pays as a ratio of its revenue to the rent it pays the landlord.
Historically, this sales to rent ratio in the retail industry is usually below 10.0% if the retail tenant and the economy are reasonably healthy. Three years ago this rent to sales ratio for the approximately 22,000 non-anchored tenants in this large portfolio was at 10.3%. This same ratio for the end of the 3rd quarter of 2009 was more than 27.0%. This means that on average, every non-anchored tenant was paying more than 25 cents of every $1.00 in revenue as rent. This ratio is unsustainable and no tenant can afford to maintain this expense ratio for more than a few months without filing bankruptcy or going out of business.
The recession is not over, inspite of what Ben Bernanke has publically said. The retail carnage will continue and during the 1st quarter of 2010 you will see many retail tenants close their doors. Count on it.
ECW
The overhang of branded product at off-price retailers is going to be very problematic during the holiday shopping period. We for example Filene’s Basement (aka SYMS) still has a huge amount of old American Eagle/Martin + Osa inventory that they are burning off. Abercrombie and fitch is at the center of the storm because their product line of pre-worn (distressed) expensive clothing to be purchased by teenagers/college kids isn’t a good fit.
Note that the Ruehl 929 concept failed, suggesting that as their target market reaches peak earnings power they move on to J Crew. In the mean time, the college kids and high schooler are flat broke either because they can’t get jobs, or mommy and daddy don’t have jobs.
I just want to say that Abercrombie is not only extremely expensive but has very poor management. I received a $200 gift card and I found that you do not get much for $200. Who needs a high quality shopping bag. A shirt is $70 and a pair of jeans is $90. In today’s economy give me a break!