Christmas Wrap: Stores See Moderate Gains, Questionable Margins
It wasn’t a blockbuster or a bust.
Retailers emerged from the holiday season with midsingle-digit revenue gains, questionable margins and leftover fall and holiday inventories. They now look forward to at least three weeks of intense clearance activity to shed the excess, generate early spring selling and make up for business lost during last week’s lethal “cyclone bomb” from Mother Nature.
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The storm caused dozens of deaths, hundreds of thousands of power outages and massive flight delays. More than 183 million people nationwide fell under wind chill advisories and warnings last week. Michigan, Minnesota, Kentucky and western New York were among the areas worst hit by snow, ice and winds. Underscoring the danger, Gov. Andy Beshear of Kentucky on Friday warned Americans, “Stay inside. Stay off the roads. Last-second shopping is not worth it if it would cost you your life.”
Still, major urban areas on the East and West coasts with the biggest concentrations of retail were hit less hard, so the weather event was not that impactful for the industry. Freezing temperatures for most of the East continued through Monday, though it is expected to warm up to the 40s and even high 50s by late this week. That will get people out looking for more deals but won’t do much for winter-related merchandise.
Based on interviews and reports Monday from retailers and analysts, consumer spending held up for most of 2022’s extended holiday season, thanks to perpetual price promoting starting in October. Gas prices dropping from an average of more than $5 in June to just over $3 in December in many states also helped, as did the onset of wintry weather spurring sales of coats and cold-weather accessories. Markdowns this month culminated at up to 50 to 60 percent off in many cases, encouraging both self-purchasing and gift shopping at sufficient enough levels.
A precise read on the holiday season won’t be known until fourth-quarter financial reports are issued in February and March. On everybody’s mind for next year: the probability of a recession. Most retailers and industry analysts believe it will happen, and the real question is whether the economy will land hard — meaning an extended period of recession lasting more than two quarters — or whether it’s a soft landing.
On Monday, Mastercard SpendingPulse reported that U.S. retail sales, excluding automotive, increased 7.6 percent year-over-year this holiday season, running from Nov. 1 through Dec. 24. Mastercard SpendingPulse measures in-store and online retail sales across all forms of payment and is not adjusted for inflation.
“This holiday retail season looked different than years past,” said Steve Sadove, senior adviser for Mastercard and former chief executive officer and chairman of Saks Inc. “Retailers discounted heavily but consumers diversified their holiday spending to accommodate rising prices and an appetite for experiences and festive gatherings post-pandemic.”
According to Mastercard’s preliminary figures, online sales grew 10.6 percent compared to the same period last year and represented 21.6 percent of total retail sales, up from 20.9 percent in 2021 and 20.6 percent in 2020.
Black Friday was the top spending day of the 2022 holiday season, up 12 percent year-over-year, excluding automotive. This was followed closely by Saturdays in December, Mastercard indicated.
“Building on the ongoing demand for experiences, in-person dining continued to show strong momentum with restaurants up 15.1 percent, year-over-year,” said Sadove.
“Inflation altered the way U.S. consumers approached their holiday shopping — from hunting for the best deals to making trade-offs that stretched gift-giving budgets,” said Michelle Meyer, North America chief economist, Mastercard Economics Institute. “Consumers and retailers navigated the season well, displaying resilience amid increasing economic pressures.”
Craig Johnson, president of Customer Growth Partners, said despite the storm, “It was the strongest pre-Christmas week we’ve seen in memory. Christmas Eve, which is usually muted, was just exceptional. Conversion rates really jumped up on Dec. 23 and 24. The bad news was there was a very deep December lull, down 8 or 9 percent, putting retailers in a worse hole than usual.
“The day after Christmas is always a little slow to get started as people recover from Christmas Day, but once you got near to 11:30 things got busy and stayed strong,” Johnson added.
He sees retailers posting holiday sales gains of 5.5 to 7.5 percent. “Things were strong, but not as strong as last year when there was a post-COVID-19 rebound. Some retailers are having a hard time comping the comp.”
By Johnson’s account, top-performing categories were apparel, toys, food and beverage, cosmetics, fragrances, jewelry, footwear, as well as upscale department stores including Neiman Marcus, Saks Fifth Avenue, Bloomingdale’s and Nordstrom, and the dollar store sector. Big-box stores like Walmart and Costco did OK.
“Overall, the weather lifted demand for need-based categories as well as cold-weather gift-giving categories throughout December leading up to Christmas,” said Evan Gold, executive vice president of Planalytics, a consulting firm that helps retailers plan inventories based on weather forecasts. “The last two weeks of December leading up to Christmas were much colder than last year, helping to drive demand for seasonal categories.
“But looking ahead. January will be warmer than last part, and there will be limited opportunities for clearance of cold-weather categories on a year-over-year basis.”
For some regional retailers, last week’s storm ruined a couple of days of business. “It was horrible. Everywhere from Atlanta up to the Midwest was brutal, in particular Illinois, Iowa, Minnesota and Nebraska,” Jim von Maur, CEO of the Davenport, Iowa-based Von Maur, told WWD. “There were 40 to 60 mile an hour winds for three days, ripping interstate road signs to threads.”
He said 80 percent of Von Maur’s business, which includes 37 department stores and the 70 Dry Goods specialty stores selling contemporary women’s fashion, accessories, shoes and gifts, was impacted by the weather, primarily Thursday and Friday. “If you have a store in Alabama or Atlanta, you just don’t know how to deal with the extreme cold,” von Maur said.
Still, von Maur said December overall was good, but not like last year. “We were hoping for more but post-Christmas selling keeps getting better and better for us. Monday is a holiday for a lot of people. They will come out shopping. The wind is not nearly as bad, and each day will get better,” as the week progresses.
He said von Maur’s margins are “pretty decent,” though in the junior business, “we had to be a little more aggressive.” Otherwise, Uggs, Vineyard Vines and Tommy Bahama were bestsellers.
“We exceeded our goals for the season,” said Shane Grenley, the U.S. manager for the Barcelona, Spain-based Mango fashion chain. “Traffic was up, not in all locations, but it was up overall. In terms of inventory levels, and having the right product aligned per store, per state, it’s been a positive experience.”
Late in the season, sales of coats, sweaters and dresses really picked up in the U.S., Grenley said. “It was all about people buying for themselves to go out to parties and buying more novelty styles as gifts for others.”
“We only put on sale our underperforms. Our top 40 items we did not put on sale, but a lot of competitors were doing the whole store-wide sale,” Grenley said.
Mango went into full sale mode on Monday to clear out inventory from 2022, and will be bringing in new transitional pieces in mid-January and February. “The goal is to liquidate underperforms and fall. We are starting now to maximize the traffic coming in,” Grenley said.
Ken Ohashi, CEO of Brooks Brothers, said the company “had a strong start, felt a little lull and then saw a strong build” right before Christmas. “It wasn’t a consistent flow,” he said, speculating that because there was an extra shopping Saturday this year, customers didn’t feel pressure to shop early.
Cold-weather product “really turned on as the season progressed,” he said, as did sportswear, which has become the largest category for the retailer.
Brooks Brothers’ women’s business continued to post good comps, he continued. In the first half, much of the women’s career and luxury items — where the company focused efforts — were out of stock, but the flow improved in the back half, making “a big difference,” Ohashi said.
The company is also attracting a younger customer thanks to the updated assortment designed by Michael Bastian, he said.
“We should end the month where we thought we would,” he said. “When we look at the total fourth quarter and year, we feel good. And our inventory levels are well-controlled which is very positive as we head into [the first quarter].”
Bob Mitchell, co-CEO of Mitchells Stores, said the holiday season was an enigma. Although overall sales came in below expectations, it was still the second-best Christmas in the history of the company.
“It started slow, the middle was strong and it faded at the end,” he said, as the storm that blew across the country just before Christmas forced stores in Seattle and Portland, Oregon, to close. “We missed plan, but it was still very strong.”
The top sellers were luxury items from brands such as Brunello Cucinelli, Zegna, Loro Piana, Isaia and Akris. Women’s handbags from Saint Laurent, Bottega Veneta and Loewe saw growth on top of a record year in 2021. But jewelry, “a big growth engine” during the height of the pandemic, wasn’t as popular this year.
There were reports that luxury overall has begun to slow in the U.S. after almost two years of strong growth.
Looking ahead, Mitchell said he thinks 2023 will be “good, not great. People are not panicking, but the pent-up demand/binge shopping is over. We’re still cautiously optimistic.”
Ken Giddon, president of Rothmans men’s stores in New York, said, “It was a good season. We kept going to the end so we were pleased. Our suburban stores were strong and the city made a comeback. Everything slowed a little a month ago, but that was from very high levels. We sell a higher-end customer, so we didn’t see the slowdown the national retailers saw.”
Top sellers included outerwear, trousers and denim, he said, and in the week before Christmas, accessories as gifts were strong.
“We’re looking forward to 2023,” Giddon said. “We’re anticipating challenges, but we’ll use what we have learned in the past. If we could handle being shut for six months, we can handle a recession.”
At Macy’s, popular items this holiday season included fragrance gift sets, fine jewelry sets; toys from Toys “R” Us departments inside Macy’s, and online; cosmetic gift sets, and cozy sweaters and coats.
“This year, consumers were hearing about the glut of inventory and were likely waiting do more last-minute holiday shopping to get the best value,” a spokesperson from Macy’s indicated.
“For holiday, we are seeing a new trend with big diamonds set in yellow gold to add even more bling,” said Jamie Singleton, group president and chief consumer officer at Signet Jewelers. “Black diamonds have also trended for both men and women. Additionally, we are continuing to see an the trend in men’s jewelryincrease even blurring the gender lines with both men and women gravitating towards classic trends such as pearl strands, tennis necklaces, diamond studs, and signet rings. Across our retailers, yellow gold continues to be a trend driver. We also saw a demand for luxurious gifts.”
“The weather was pretty brutal up here,” said Harry Cunningham, cofounder and owner of GoodMrkt, located in the Jefferson Pointe mall in Fort Wayne, Indiana. Business was impacted on Dec. 23, with the mall opening late, and by lunchtime, people came out and the afternoon business was OK, Cunningham said. He closed the store early, so employees would get home safely. GoodMrkt sells brands that support a variety of causes, from women’s empowerment to ending poverty and hunger to helping the environment through donations, a percent of proceeds or how the products are manufactured and sourced.
He said business on Christmas Eve was flat to last year, and GoodMrkt saw midsingle gain for the season. “From talking to my retail neighbors, they were certainly happy with how the season was going.”
Some bestsellers were Sackcloth & Ashes blankets, priced $110 to $140, where for every blanket sold another one is given to a homeless shelter. Ranger Station candles, priced $39, also sold well. The candles come in reusable whiskey glasses.
“This year, especially compared to last year, saw promotional activity a lot earlier primarily due to access to product. Last year was far less promotional,” said Stephen Yalof, CEO of Tanger Factory Outlet Centers. “We are heartened by reports that, in the last week or two, customers got out early in anticipation of the dangerous weather that occurred in the more northern states.”
He also said many shoppers used Tanger’s app to “window shop” so to speak and plan online despite the severe weather conditions. “They became far more mission-driven and did less tire kicking.”
Yalof did acknowledge that Tanger lost “a few shopping hours due to early closures particularly at our centers in the north.…With value being the mission and clearance for a lot of our retail partners, I think they were able to execute to what they were planning to.”
“This holiday season has been one of the most competitive environments we’ve seen in recent years,” said Paige Thomas, president and CEO of Saks Off 5th. “We found that customers were searching for luxury at a value and we focused on our value proposition throughout the season, ensuring we delivered. Some of our most popular promotions were our designer flash sales for Golden Goose, Saint Laurent and Valentino. As we head into 2023, we anticipate the market to be highly promotional into January. We’re focused on continuing to offer what the luxury fashion shoppers are looking for — at incredible prices.”
“If you take out the bad weather last week, overall retailers did well. The trick is where did the margins come in,” observed Sharon Leite, CEO of The Vitamin Shoppe, speaking about retailing generally. “The sales line was pretty strong, but it really comes down to what the gross margins were.
“We saw positive trends in our business,” Leite added, citing sports nutrition and supplements and “on- the-go” nutritional drinks and snacks as bestsellers. “We feel pretty good about where the consumer is, though they are cautious.” Post-Christmas and January is The Vitamin Shoppes biggest selling period as people make resolutions about living healthier lifestyles after partying it up during the holidays.
Noting that industry reports through Black Friday and Cyber Monday called for pretty strong gains, including the National Retail Federations’s 6 to 8 percent increase, Leite said, “I’m curious where it ends up because of the cold and snow last week. There still are inventory gluts out there in certain areas of retail. I will be interested to see how deep the after-Christmas sales go.”
Bill Brand, CEO of Rue21, was visiting family in Buffalo, New York, and was stuck there on Monday because the airport was still closed due to the storm. “We pretty much met our expectations. We went into the season with a solid plan and were building up a lot of momentum in the last two weeks. Last week was our biggest week of the year, but the severe weather had an impact, about 10 percent of our stores were impacted. Five percent were closed, another 5 percent had limited hours. Our teams managed really well. Some business was pulled forward as people saw the storm approaching.”
Brand said the season was “all about casual and cozy, and layering for girls. Contour and seamless tops did spectacularly. On top of that we saw a huge business in sweatshirts, shirt jackets and varsity jackets.” Fleece for $29, with a buy one, get one for $10, also sold well. “Jeans are always strong but we are starting to see a return to lightweight cargo pants, and parachute pants just started to sell.”
Brand said Rue21’s margins are up significantly from two years ago, as the company shifted to more of an everyday low price positioning. “We have a low income customer. They want the styles and trends. They just want it as a great value.”
“This holiday season was all about value, value, value with customers feeling the impact of inflation,” said Kevin Tulip, president of Primark U.S. “As a value retailer, this coupled with our three new New York store openings [downtown Brooklyn: Jamaica, Queens and Roosevelt Field mall in Garden City] in as many weeks. We saw a strong run up to Christmas and busy holiday season. Being a bricks-and-mortar only retailer means our store footfall can be a good reflection of shopper sentiment and this year people were definitely back out shopping in person. Our stores were busier than ever. While U.S. shoppers are still getting to know Primark’s offerings, our licensed products, already a firm customer favorite, saw a big jump this holiday season.” NBA, NFL, Marvel, Netflix and Disney are key licensed brands at the Dublin-based Primark.
Businesses on Manhattan’s Madison Avenue, according to Matt Bauer, executive director of the Madison Avenue Business Improvement District, saw their strongest traffic earlier in December, as many of the affluent local residents tended to shop earlier before traveling to second homes for the holidays. Some recent store openings, such as Hermès’ relocated flagship, Irene Neuwirth and Kirna Zabete helped bring in some traffic.
While the absence of many tourists from China continues to be a factor, Madison Avenue hotels reported an uptick in travelers from South America and Europe, he said. During a recent neighborhood tour, The Lowell indicated the property was entirely booked, Bauer said.
David Bassuk, global co-leader of AlixPartners’ retail practice, said the holiday season was in line with the consultancy’s forecast for a 4 to 7 percent gain — an increase that was whittled down to about nothing given the inflation that’s shaped the economy and the consumer mindset.
“It’s been a moderate holiday. Business is up, but not as much” as some hoped, Bassuk said. “Online still is a huge factor, but is decelerating from last year.”
The harsh weather across much of the country kept many people from making their last dash out to stores. And while that had some people logging in and shopping online, Bassuk said the storm has set up an opportunity for retail this week.
“Now that the weather is tapering off a bit, I think we’re going to see a big post-Christmas shopping spree,” Bassuk said. “It’s usually a time for returns,” he said. “This year, I think we’re going to see people go out and get shopping and look for those deals that [they missed] over the last weekend.”
On Monday, clearance activity seemed to crescendo. Gap offered an extra 60 percent off already marked down merchandise. Banana Republic was at up to 60 percent off. Lands’ End was at up to 80 percent off. Saks Fifth Avenue offered up to 40 percent off certain designer brands, and The Container Store was up to 50 percent off.
“Now is the time for retailers to be making aggressive plays to get consumers into their store,” Bassuk said, and try to move that inventory that no retailer wants to be stuck with in January.”
That certainly seemed to be the thinking at Target Corp., which was working hard to get shoppers off their couches post-Christmas. The discount giant launched what it dubbed “The Target Clearance Run” with sale promotions of up to 50 percent off on apparel, sleepwear, shoes, beauty gift sets, toys and more.
As Christina Hennington, executive vice president and chief growth officer at Target, said, “Our guests always look forward to post-holiday deals, whether they’re looking to spend the gift cards they received as a holiday gift, restock their pantries after hosting for the holidays or prepare for a New Year’s celebration.”
— With contributions from Jean E. Palmieri, Evan Clark and Rosemary Feitelberg
