NEW YORK – With its aggressive promotions, icy winter weather, late UPS deliveries and six fewer shopping days, the 2013 holiday selling season was best described by Wolfe Research analyst Aram Rubinson as “a comedy of errors.”
But few retail chains, apart perhaps from Walmart, are laughing. Despite reported strength in CE analysts believe most retailers ceded share to Walmart and lost out online to Amazon.com.
What’s more, retailers’ rear-guard discounting will likely prove costly come earnings season, as the fourth quarter’s heavy promotional tenor took a toll on margins.
“Retail sales have been volatile all year and the holiday shopping season was no exception,” observed Jack Kleinhenz, chief economist for the National Retail Federation (NRF). Despite a 4 percent hike in total December retail sales, as reported by the U.S. Census Bureau (excluding restaurants and auto dealers), “some of the increase came at the expense of margin,” Kleinhenz said. “Retailers are still stressed and a longterm promotional environment may actually hurt the bottom line.”
CE and appliance chains had it tougher, according to the Census Bureau report, with December sales slipping 1.4 percent year over year to $8.4 billion, and falling 2.5 percent from November, when Thanksgiving/ Black Friday sales drew the biggest holiday activity.
Best Buy, which reported a 1.5 percent dip in U.S. holiday comps, similarly cited a 2.4 percent decline in CE industry sales for the nine weeks, ended Jan. 4, as compiled by The NPD Group.
Wolfe Research’s Rubinson believes time-pressed consumers opted for online shopping or one-stop general merchants over CE and other specialty channels, while Janney Montgomery Scott retail analyst David Strasser said Walmart’s one-hour product/price guarantee on Thanksgiving “punished” other chains and “badly hurt” smaller independents and regional players.
Whether Walmart or the weather was to blame, the proof, as they say, is in the pudding. Here’s a rundown of holiday performances by some of the nation’s largest CE retailers.
Amazon.com last month reported its “best ever” holiday season, with more than 36.8 million items ordered worldwide on Cyber Monday alone.
On a conference call, Best Buy chief financial officer Sharon McCollam said Amazon wielded a major advantage with its personalized direct marketing, including product recommendations, and extended Christmas delivery cut-off, which Best Buy is working to emulate.
Wolfe Research’s Rubinson added that Amazon prepped for the holidays by expanding its assortment and, surprisingly, its prices. The company added 21 million SKUs since Nov. 1 – 6 million of which were CE – and raised retails in Rubinson’s representative sample basket by 2 percent over the past 30 days.
Amazon also cited record growth for its third-party Marketplace sellers during the period. The e-tailer said Marketplace volume was up more than 50 percent on Cyber Monday, to over 13 million units ordered. It referenced third-party seller Amazing Deals Online, a New Jersey-based e-tailer that enjoyed an 80 percent increase in holiday unit volume, and more than $1 million in total sales on Cyber Monday, including a 5,000-percent sales increase on a single discounted item.
Barnes & Noble said retail sales, excluding Nook devices and content, slipped 6.6 percent to $1.1 billion for the nine weeks ending Dec. 28, 2013, due to store closures and a 0.2 percent decline in comps.
In contrast, Nook revenues fell 60.5 percent to $125 million, comprised of $88.7 million in device and accessory sales (down 66.7 percent), and $36.5 million in digital content (down 27.3 percent). The bookseller attributed the declines to lower unit volume of its e-readers and tablets, and lower average selling prices as the latter sold for under $100 during the holiday period.
Costco reported a 6 percent spike in December sales, to $11.5 billion, but continuing declines in CE. Comp sales for the five-week period, ended Jan. 5, rose 5 percent excluding gasoline, driven by a 4 percent increase in holiday traffic and a 1.5 percent gain in average purchase size.
CE comps remained in negative territory, although they showed some sequential improvement from previous months. Janney’s Strasser attributes the warehouse club’s CE woes to Best Buy’s introduction last year of Vizio TVs, which are core to Costco’s video assortment.
h.h.gregg said its decision to stay above the promotional fray during the holiday season hurt sales.
According to preliminary estimates, net sales fell 11.6 percent to $707.1 million, and comp sales decreased 11.2 percent, for the third fiscal quarter, ended Dec. 31, 2013.
The chain’s computing and wireless category took the biggest hit, with comps falling about 24.5 percent, while its CE business, largely comprised of TV, decreased approximately 20 percent.
In a statement, president/CEO Dennis May said, “Our holiday sales were significantly impacted by increased promotional offerings of televisions and tablet products across a variety of retail formats. While we are disappointed with these sales results, we made the strategic decision during the quarter not to fully participate in the heavily promotional environment.”
Janney’s Strasser said h.h.gregg’s sales miss during an otherwise strong quarter for CE was also attributable to “the wrong product mix for this holiday season,” pointing to the chain’s limited offering of tablets, phones, video games and small-screen TVs.
Conversely, the retailer’s majap comps rose about 1.5 percent, while its expanding home products category, which includes mattresses, furniture and exercise equipment, saw a 36.1 percent increase in comps.
The results, May said, confirmed the company’s decision “to continue to transform our business towards a broader assortment of home products, including appliances and home furnishings … We plan to continue to implement initiatives to drive profitable sales and customer traffic in these and other newer categories. Management remains committed to transforming the company’s sales mix and broadening its reach to both new and existing customers.”
May added that despite the softness in CE, the chain managed its inventory and liquidity position well, with total inventory per store below 2012 levels. But while h.h.gregg remained “solidly profitable” in the third quarter, he warned that the weak third-quarter sales will impact full-year earnings results, which are scheduled to be announced Jan. 30.
Sears said total comps for the fourth quarter through Jan. 6 fell 7.4 percent, comprised of a 5.7 percent dip at Kmart and a 9.2 percent decline at Sears. The decreases were led at both chains by CE, although major appliances also contributed to Sears’ comp declines.
The weak performance is expected to result in a fourthquarter net loss of between $250 million and $360 million, and a full-year net loss of $1.3 billion to $1.4 billion for the period ending Feb. 1.
In a statement, the company continued to tout its transformation from “a store network” to a “member-centric integrated retailer” leveraging its Shop Your Way loyalty platform, and blamed higher expenses and margin hits to “traditional promotional programs and marketing expenditures.”
Observed Janney’s Strasser, “After this past week, a key story that is now being watched is whether Sears [and Toys“R”Us] make it another year. That is not a good place to be, where the press is questioning their existence. This is especially true for big ticket, as it makes consumers/vendors more wary of buying from, and shipping to these weakened companies.”
Target said it was enjoying “stronger-than-expected” fourth-quarter sales – until it announced an expansive breach of its private-label credit card database on Dec. 19. As a result, comps for the fourth quarter ended Feb. 2 are projected to decline 2.5 percent, compared with prior guidance of approximately flat comp sales. The discount chain also plans to close eight of its 1,797 U.S. stores in May.
Toys“R”Us reported a 4.7 percent dip in U.S. comps for the nine weeks, ended Jan. 4, which the No. 1 playthings chain attributed to the late Thanksgiving. Strongest performers included the learning, seasonal and core toy categories.
Walmart, which reported “record-breaking Black Friday results,” did as it promised and won the season “hands down,” Janney’s Strasser observed, due in no small measure to its well-publicized promotions. “We believe Walmart was successful in driving traffic and likely took share of a smaller pot this holiday” – while possibly delivering death blows to Sears and Toys“R”Us, he noted.