Liz Claiborne’s plan, announced last week, to sell its namesake sportswear only at Penney stores and on a TV shopping network will end a decades-long tie between the Claiborne franchise and Macy’s.
The deal will give Penney more exclusive products, guarantee revenue and profits for Claiborne and free up Macy’s to better differentiate itself as its customer base increasingly overlaps with Penney’s, analysts and consultants said.
Macy’s has traditionally been positioned as a little higher-end than Penney, but the 2005 merger of Macy’s owner Federated Department Stores with May Department Stores broadened the customer base and brought the company into more direct competition with Penney, analysts said. Penney, meanwhile, has been expanding its reach into Macy’s territory.
Department stores like Macy’s and Penney have beefed up their exclusive label offerings to woo shoppers to their stores and reduce competition centered on price.
Check out the quickly shifting media landscape putting retailers’ ad strategies at risk.
In a research note this week, Credit Suisse analyst Michael Exstein examined what changes in the media world mean for retailers who are used to reaching consumers through traditional channels — like the newspaper.
In the past five years, there has been a modest shift from print toward digital media, but Exstein warned that: ”We may in effect be reach a ‘tipping point’ where past media strategies will no longer be sustainable.”
Promotional national retailers that cater to a younger demographic and rely on national media to communicate to customers may be most exposed to changes in the media landscape, he said.
“This is a particularly acute problem for retailers that are used to (some would say dependent on) driving sales and marketshare through promotions such as Target, Kohl’s, Macy’s, and JCPenney,” he said.
“How will they promote in the future if the Sunday newspaper can not be counted on to distribute an insert or an television network can not be counted on to deliver an audience at a specific time/day?”
Retailers like Target that have a large number of younger shoppers — shoppers who rarely, if ever, read a newspaper and instead spend large amounts of time using Facebook or Twitter – there is less time to respond to the changing way consumers consume media, he said.
But retailers with older demographics – like Bon-Ton, Dillard’s, JCPenney or Macy’s – may have the advantage of at least being able to follow the lead of other retailers, who will need to move swiftly to respond to the shifting media landscape.
Several retailers and food companies posted quarterly results, offering different views on where they stand in a recession that has consumers dialing back spending.
Macy’s posted a better-than-expected profit as it cut costs, but the department store operator’s new, higher earnings forecast shows full-year profit could still fall short of analysts’ expectations.
Sara Lee, the maker of baked goods and Jimmy Dean sausage, also reported a stronger-than-expected profit before one-time items on improvements in North America and said it was still considering divesting its international household and personal care business.
Underwear maker Maindenform also saw a profit that topped expectations, thanks largely to strong demand for its shapewear products, and raised its full-year outlook.
However, Liz Claiborne, owner of the Juicy Couture, Kate Spade and Lucky Brand chains, posted a deeper-than-expected quarterly loss as the recession kept many shoppers from buying the company’s clothing and accessories.
July’s results mark the 11th consecutive month of falling sales at stores open for at least one year, a measure known as same-store sales.
Rising unemployment, cool weather and a lack of tax-free holidays like those held last year disheartened shoppers, who bought just daily essentials last month.
Still, some companies like Gap and Macy’s managed to forecast better-than-expected earnings for the quarter, as they managed their expenses better.
But retailers’ true test? September, according to one analyst.
“The true month to watch will be September because it will mark the first month that started the streak of negative same-store sales in 2008,” said Jharonne Martis, senior research analyst with Thomson Reuters.
American luxury retail has been, well, in shambles.
Since department store revenues began to plummet in September, luxury’s glossy image transformed to one that brings to mind strewn-about merchandise on a Saks Fifth Avenue floor.
Pricing structures have come under pressure as shoppers seek deep discounts, or worse, question price guidelines after aggressive reductions at the end of last year. In the spring, markdowns crept dangerously close to the start of the season. Clearly, discounts really are not what designers want their labels to be known for.
“For younger, newer designers, image is everything,” said fashion consulting firm Launch Collective’s Rob Spira, who recently co-curated the New York City Save Fashion pop-up shop to celebrate independent designers.
“Before, designers were coming to us for ideas to build funding,” Spira told Reuters at the Save Fashion store, which popular style Web site Refinery29 also co-curated. “Now they’re looking for creative ways to sustain in this kind of environment.”
Refinery29 Editorial Director Christene Barberich said many rising designers complained recently that upscale department stores were canceling orders despite interest in their brands.
“These smaller companies don’t really have the resources to sustain their $60,000 orders when stores cancel,” said Barberich.
Save Fashion, around for a one month stint in the city’s Port Authority bus terminal, allows designers grappling with lower profit margins and less marketing money to sell their overstock at half-off or more. The bright space houses about eight fresh designers every week — including Helmut Lang, Steven Alan, ACNE, Earnest Sewn, Rachel Comey, and Rogan — in a way that won’t recall “a shabby sample sale,” Barberich said. Rather, she dubbed it a “dream capsule department store.”
Save Fashion’s ad campaign, depicting a model wrapped solely in an American flag, says a lot. The event indicates a shift in how Americans may define high-end products once the smoke clears.
“Most of the designers here aren’t considered ‘luxury,’ but there is something about them that shows a future of luxury: smaller quantities, more care, more attention,” Barberich said, adding that some of the brands make their own patterns and trademark their own textiles. “Here, it’s not dirt cheap, but it’s as cheap as it can be where the designers are still making some money or at least falling flat instead of going into the red.”
Refinery29 Founder Philippe von Borries talks about alternative retail from the Save Fashion store
Department stores are expected to see a bumpy road to recovery this year. In March, Fitch Ratings Services said it sees same store sales for luxury department stores underperforming the broader sector, with double-digit sales declines continuing in the first half. Standard & Poor’s cut five department store credit ratings in April, sending Macy’s and J.C. Penney to junk status, and Neiman Marcus into even riskier territory. Saks received a speculative B-minus rating from both agencies due to weakening store sales.
Meanwhile, the Dubai investment firm that owns Barneys New York gave the high-end store a capital injection last month to help it pay for its remaining shipments, one day after S&P cut Barneys to a deeply distressed ratings level.
“The nature of retail is changing,” Launch Collective’s Spira said. “Despite the fact that we’re in challenging times, to the consumer it has to seem like everything is still beautiful.”
Macy’s CEO Terry Lundgren professed his admiration for Target’s advertising tactics at a consumer conference in New York.
Macy’s ran two back-to-back ad campaigns late last year, which included the “Believe” ads based on the famous New York Sun’s “Yes, Virginia, there is a Santa Claus” editorial.
Those ads were targeted at unseating the discount retailer, which Lundgren called “one great retail advertiser.” He said it would take time for Macy’s to reach its goal.
The department store chain is localizing its stores to cater to consumers’ varying tastes in individual markets. Pittsburgh was one market that Lundgren singled out for learning why it is key to tailor stores to suit local tastes.
Pittsburgh consumers, Lundgren said, surprised Macy’s when they asked for cap sleeve dresses last fall season.
“No one in America was asking for cap sleeve dresses last fall except Pittsburgh,” he said.
Lundgren’s response: Don’t ask, don’t analyze, just give it to them.
That attitude seems to have served Macy’s well, since the department store chain used positive results from its pilot markets for the localization initiative to expand it to more areas.
Check out the not-so-chipper news in the retail world.
Restaurant chain Burger King reported lower profits and cut its full-year forecast due to the currency fluctuations, while cosmetics and perfume companies Estee Lauder and Elizabeth Arden rang up lower, albeit better-than-expected, profits and said they would cut jobs.
Indeed, retailers overall posted the second weakest monthly same-store sales performance since Thomson Reuters began tracking the data in 2000 as heavy job losses, weakness in the U.S. housing sector and the still-tight credit markets have many consumers closing their wallets.
In the mixed-bag camp, apparel retailer Gap saw same-store sales fall more than expected, but raised its full-year profit outlook.
There is some good news out there, however.
Discount giant Wal-Mart posted a better-than-expected increase in sales at U.S. stores open at least a year, almost double what analysts had expected. Meanwhile, Kellogg’s quarterly profit rose and the cereal maker stood by its 2009 profit outlook, and department store operator Macy’s saw a smaller-than-expected decline in same-store sales and raised its fourth-quarter profit forecast.
The terrible U.S. retail sales racked up in December -- called a "horror show" by ING -- were all the more gruesome because of the sales on offer to customers in the run up to Christmas. Shops weren't exactly giving things away, but their generosity knew few bounds.
Consider the experience of one visitor to a heaving handbag department in a Maryland Macy's.
Customer: "I would like to buy this handbag please. Oh dear, it appears to be the only one that is not on sale." Salesman: "So it is. Tell you what, sir, I'll give you 15 percent off anyway."
Happy customer, happy new handbag recipient, unhappy sales figures.
It was no surprise that sales were weak in December, though some retailers stood out Thursday for their worse-than-expected performance.
Wal-Mart, the world’s largest retailer, said sales at U.S. stores open at least a year rose just 1.7 percent, while analysts were expecting a 2.8 percent increase. Wal-Mart and other chains such as Macy’s cut guidance for the fourth quarter ending later this month.
Shares of Wal-Mart fell more than 9 percent on Thursday morning, dragging the Dow Jones industrial average into negative territory as well.
Research firm Retail Metrics said that while the month was not as bad as it could have been, it was still ugly.
Among the retailers that bucked the trend: Target’s same-store sales fell 4.1 percent, but that drop was less than expected.
Discount chains TJX and Ross Stores said same-store sales were in line with last year, while analysts had expected both of their sales to fall. Kohl’s, meanwhile, said same-store sales fell only 1.4 percent, while analysts expected a 5.5 percent dip.
Some teenagers apparently still have some money to spend — or they got others to buy them gifts last month. Aeropostale’s same-store sales jumped 12 percent (analysts predicted a decline) and Hot Topic’s same-store sales rose a better-than-expected 4.3 percent. Guess people are still heading to the stores for ”Twilight” perfume, shirts and other items.
Reuters blogs are now using Apture, a service that helps us link to related articles, videos, maps and more from across the Web. Look for a small icon next to a hyperlink; clicking it will launch a new Apture browser window. Click on the 'Feedback' button to tell us what you think.
Check out the growing J.C. Penney-Macy’s rivalry.
