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Dear Amazon: No Anniversary Card from Walmart

Dear Amazon: Don’t Expect an Anniversary Card from Walmart

You have no doubt been up all night scouring Amazon’s Prime Day deals and you are now entering the zombie phase in front of your computer or smartphone. We can now officially say RIP to Black Friday but the competition is stomping its feet.
Let’s be real—Black Friday went the way of the flip phone 2 years ago when retailers started offering deals at least one week before Thanksgiving. Last year the flood-gates opened up as many retailers canceled Thanksgiving Day altogether and turned it into just another day at the mall. In addition, Summer sales are not a new thing—Target has been running a Summer Black Friday sale for years. So why is Wal-Mart shaking its fist at Amazon’s 20th anniversary celebration by suggesting limiting big deals to Prime members is unfair? After all, Wal-Mart would never do such a thing to drive market share (however WMT is testing a $50 Prime membership of its own).

The answer is simple: Amazon continues to force the creep of gross margins at brick and mortar retailers around the world. Not only is the 800 lb gorilla stealing market share and forcing the competition to match prices (gross margin creep) but it also is forcing the competition to spend lots of shareholder cash on long overdue ecommerce investment catch up. In Walmart’s case 20% of customers are Amazon Prime Members while the discounter still only derives low single digits revenues from online

No wonder Walmart is stomping its feet, lowering shipping thresholds and following the leader.

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Omnichannel Shoppers May Be Omni-Disappointed

Just when retailers are saying, “hey look over here at online and forget about our flailing in store traffic,” FedEx (FDX) goes all Grinch today.

In its disappointing report this morning, the delivery behemoth suggested West Coast port issues are more significant than maybe retailers have been letting on.  That raises my Grinch red flag for retail stocks.

This callout is particularly interesting as we just finished the Q3 reporting season when very few retailers called out the West Coast port jams as a real issue. To be sure, only a few retailers cited delivery delays and those retailers were the ones you would expect to point to just about any excuse (ANN (ANN), Ascena (ASNA)).  So, maybe these retailers were not crying wolf after all?

The West Coast port delay raises two separate issues.

First, while mall traffic continues to decline maybe consumers show up and don’t find what they want. Second, I expect online penetration to be up as much as 500 bps year over year this holiday season.

If stock gets to distribution centers at the last minute, there is little chance that even omnichannel retail champions will be able to deliver. Throw in last-minute capacity issues at FedEx and UPS (UPS) (like last year) and Santa might have to wait for a thaw to come around. As a result, the consumer is omni-disappointed.

Can you say gift cards?


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Look No Further than Retail for a Halloween Fright

In honor of Halloween lets talk about what scares me for H2


1.This year I am going to dress up as Sir Philip Green (Topshop founder) and scare US retailers to death.  If I don’t scare them on Halloween the opening of Tophsop Fifth Avenue will do the “trick”. For the teen and missy space I guarantee you this opening will not be a “treat”.

2.Analysts are all bulled up about declining gas prices. Reality is so far the extra money in your wallet hasn’t made a difference.  KSS WMT JCP GPS URBN have already “spooked us” with guide downs.

3.Someone needs to yell “Boo!” at retail estimates for holiday.  The writing is on the wall. Despite a slew of preannouncements street estimates have not come down nearly enough for the group. Even the most loved retailers might not be able to escape.

4.The mighty tourism dollar might dress up as the invisible man (or in my case I would settle for a Wonder Woman costume and fly in my invisible plane). Here is a scary reality: The mighty Asian spend has been holding up luxury comps in Europe and the US for a while.  With the dollar strengthening, major US Flagships might see that spend dry up.  I would also note that Asians are spending less in Europe and don’t forget the Russians are hiding behind a giant pumpkin.

5.And the most frightening Halloween thought of all? Don’t worry about the falling temperatures this weekend—watch out for the sound of falling gross margins (unfortunately TGT and WMT don’t sell that costume)

Stacey Widlitz, President SW Retail Advisors


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URBN: Fast Fashion is the Icing on the Cake

Urban Outfitters (URBN) just became the poster child for how a company should not to manage expectations after it has reduced guidance only a few weeks after an investor day.

On Thursday night Urban reported that comparable-store sales have remained negative into October. That shouldn’t come as a surprise if you’ve actually visited any Urban store during the quarter, as we’ve done, and have observed the chain’s heavier discounts of late.

In addition to a lack of sales recovery at the all-important Urban division — which the Street was expecting for some reason I cannot discern — margins will now miss expectations as well. It’s time to wake up and smell the coffee: The back-half-recovery story is over. Analysts are lining up to downgrade the stock this morning, but I would point out that earnings expectations are still too glass-half-full for a company in transition.

When Urban reports earnings, we will hear the usual excuses: weather; perhaps, even, Ebola.

But I will put on my fast-fashion cheerleading hat once again and tell you that teen retailers are simply getting their collective booty kicked by better and cheaper product coming out of Europe and in our own backyard — for instance, from H&MTopshop andForever 21.

Now throw in a company that is in the process of changing merchandising mix, changing its core customer and expanding store sizes (no, that is not a typo).

While Urban Outfitters is the best of the teen lot, it was only a matter of time until the brand would succumb to the same pressures that have already pummeled the rest of the group. That, again, is in addition to some serious transition risk.

I am sitting this one out.

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WMT: Watch Out Falling Prices and Margins

Published Oct 15

Wal-Mart (WMT) kicks off its analyst day this morning and may reveal quarter-to-date comps. My guess is similar to last year: Management will not let the cat out of the bag. After all, it is a safe assumption that store traffic continues to be negative, and offering up another comp data point distracts from the work that goes into management presentations focused on long-term strategy.

The good news is that expectations are low, particularly after J.C. Penney (JCP), Gap(GPS) and Family Dollar’s (FDO) recent results were less than inspiring. Wolverine(WWW) chimed in Tuesday as well, calling out the “tepid environment for soft goods.” The bottom line is if Wal-Mart has a negative sign in front of the comp when it reports earnings in mid-November, I don’t think anyone will be surprised.

So what will Wal-Mart serve up on analyst day? The low-end consumer remains under significant pressure with a reduction in SNAP benefits, underemployment and dismal wage growth. Throw protein food inflation into the mix and we expect WMT to focus on continued cost-cutting in order to plow savings back into pricing.

In addition, we expect to hear more about ecommerce progress, as WMT is trying to make up for a late start (progress could also mean more spending).

Finally, we expect the company to share progress on smaller-format stores — the key will be how well those new-format comps hold up.

Oh, and don’t forget the most important piece of the puzzle. Where will WMT go after pricing this holiday season? Note to the competition: Watch out for falling prices and falling margins.

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