In a market where customers dictate how they want to shop, can fashion retail as we’ve known it continue to survive?
No one inside the fashion retail business has been under any assumption that anything is going well. In fact, I’m struggling to remember the last time fashion retail markets overall actually had a good year; 2009-10, maybe? With shopping habits changing dramatically, retailers have been struggling to keep up with new habits and attitudes and increasingly we’ve been seeing a number of stores completely close.
The troubles with Sears and JC Penney are well-known and have been an ongoing symbol of just how severely the status of the once-revered department store has declined. But when Macy’s announced earlier this week that they are closing 40 stores by Spring, it was a clarion call for retailers as to just how serious the market decline has become. Then, as if to underscore how serious the problem is, Macy’s announced late Wednesday night that it is looking to sell stakes in its well-known flagship stores, including the tourist attraction on West 34th street in Manhattan.
Of course, Macy’s isn’t the only one suffering. Consider the list of announcements made just this week:
- Sales at Gap and Urban Outfitter dropped two percent for November and December. So much for a holiday bump.
- Uniqlo, which is trying to take over the world, saw its international profits fall 14.2 percent.
- Nieman-Marcus canceled plans for an IPO and lost over ten million dollars between August and October
- Nordstrom stock declined 37.3 percent and Kohl’s stock fell 22 percent during 2015.
As my late mother would have said, “What the Sam Hill is going on?” [No, I’ve no idea who Sam Hill was.]
Naturally, analysts have filled pages with charts and graphs attempting to explain the decline, but essentially it comes down to two things: warm weather and the Internet.
Want to buy a new coat? Now that the weather is finally turning colder, there are bargains to be found on winter wear most everywhere one looks because none of it sold during November and December. With temperatures across North America significantly warmer than usual, often over 70 degrees in a lot of typically snow-bound places, no one had any need for heavy coats, thermal leggings, or even designer gloves.
Just how bad did the warm weather affect fashion retail markets? Estimates are somewhere around $572 million in losses from November 1 to December 31. That’s enough to send a shiver down the spine of most any department store manager. As a result, one can now look around and find all that great winter merchandise at severe discounts, sometimes as much as 60 to 70 percent off. Spring looks are being boxed for shipping right now and fashion retailers need to get rid of all this cold weather merchandise ASAP, profits be damned.
More than just weather, though, department stores and fashion retailers continue to struggle to grasp the ever-changing shopping habits of the American consumer. In its closing of 40 stores, Macy’s underscores one of the most significant changes to happen in retail in the past 30 years: the decline of the shopping mall. Sure, it was a great place to hang out when you were a kid, back before there was a thing such as an Internet. Malls with four major anchor stores seemed like a good idea at the time. Now, though, no one really has the time, nor the desire, to wander through a large store such as Macy’s or Norstrom when we’d really rather just buy a lot of the same goods online. As e-commerce has become more convenient and cost-effective, we’re just not as interested in driving all the way across town and spending four hours milling aimlessly through the mall, hoping to find something that amuses us.
While there are still a significant number of people who buy their clothes in stores, we’re much more likely to go to a dedicated retailer, such as H&M or Windsor, where what we want is right there, easy to find, and incredibly affordable. American shoppers have grown even more price-conscious than they were before the 2008 recession, so discounters, fast fashion retail, and outlet stores have seen sales increase while traditional mall anchors are practically ghost towns, especially this time of year when there’s really not a lot of motivation to get out and shop.
On top of this, a number of fashion retailers are struggling to repay debt they’ve acquired over the years, some through restructuring and others through acquisition. Bloomberg is predicting a higher rate of default this coming year and nearly all of the brands it considers to be in the greatest danger are fashion retailers: 9 West, J. Crew, Bon-Ton, Claire’s, and Men’s Warehouse. With bond prices at frighteningly low rates, we won’t be the least bit surprised should some of these brands be forced to close by years’ end.
Short term, this is good news for consumers as sales prices plummet in an attempt to gain even the smallest margin of profit from existing stockpiles. However, the long-term outlook isn’t so rosy as fewer competitors in the market inevitably allows prices to go up, even as manufacturing costs stay flat.
Fashion retailers have to work hard to keep their heads above water even in the best of markets. In the current climate, more than a few are starting to hand out life preservers to their employees. Macy’s 40 stores may just be the tip of the proverbial iceberg.
5 Things You Should Know: 01.05.2017
04:49:47Â 01/05/2017
https://youtu.be/x07M8GYJjRQ
Going back to bed is still an option
Wow, here it is Thursday already and this morning is not getting off to a good start. There’s snow on the roads here in central Indiana and already that snow appears to have claimed its first life in a vehicle accident quite literally just up the road from us. There’s more coming in, so be aware that there are slick spots all over, especially at intersections this morning. The chance of snow continues throughout the day so please be careful if you must be out.
The world is not looking to be an especially friendly place this morning as over 100 prisoners escaped from a Phillipinne jail, the impeachment trial for South Korea’s president is underway, and Chicago police have arrested four people who live streamed a kidnapping. Rather makes you wonder if the entire world has lost its freakin’ mind, doesn’t it? We have 5 things you need to know, but hang on, it’s going to be a bumpy ride.
The train stops here
The Long Island Railway is the busiest commuter railway in the United States, carrying over 300,000 passengers daily. If you are one of those who uses this train to get back and forth to work in New York and Brooklyn, you know how crowded it can be during rush hours. People pack as tightly as possible into the cars, hoping to not get stuck next to someone wearing too much perfume. Those packed conditions likely contributed to over 100 people being injured when the train crashed into a bumper block and partially derailed as it pulled into Brooklyn’s Atlantic Terminal yesterday morning1.
Fortunately, none of the injuries were considered life-threatening and most of the hysteria seems to have come from the fear of not being able to escape overcrowded cars. The train had already slowed for its approach to the station, but the partial derailing was still serious enough that a rail punctured the bottom of one of the cars. Somewhere between 600-700 people were on the train when it came to an abrupt stop. The most serious injury recorded so far is a broken leg.
What’s not so clear still this morning is exactly what caused the accident. The Metropolitan Transit Authority is initially looking at the train’s driver, who says that it was the driver’s responsibility to stop the train, but no one knows yet why that didn’t happen. Trains are an integral part of the New York transit system, so expect a full investigation here. If the fault were individual or mechanical, it will no doubt be corrected as quickly as possible to prevent a repeat of yesterday’s chaos.
Hey Doc, I’m feeling a pain in the ass
If anyone had the displeasure of walking around the United States Capitol yesterday, they likely saw some rather disturbing protest signs that read, “Make America Sick Again.” The people carrying the signs were, of course, protesting Republican legislation that would largely dismantle the Affordable Care Act created under President Obama’s administration. The lines were drawn yesterday as both President Obama and Vice President-elect Mike Pence lobbied lawmakers regarding the set of health care laws2.
We knew this fight was coming and we don’t expect it to be over anytime soon. While repealing the Affordable Care Act was one of the things that brought Republicans to power in this Congress, the challenge before them is how to actually live up to that promise without leaving millions of Americans stranded without insurance and healthcare providers looking for payments that may not be coming. For his part, President Obama has been urging Democratic legislators to vehemently oppose any changes to the law, using whatever parliamentary procedures necessary to prevent a vote. After six years of complete obstruction, Republicans may be about to feel what it’s like to be on the other end of partisan politics.
Among the items that were proposed yesterday are repealing the individual mandate, which has been immensely unpopular, capping funding for Medicare, basing tax credits on age rather than income, which would shift more credits to older people who currently have none but could leave younger people with less income stranded, and allowing insurers to sell across state lines3. None of these are likely to become law without a significant fight in both houses of Congress. I’m sure this is just the first time we’ll talk about the issue. It’s not going away.
When free speech disrupts the economy
Just as the US Congress is getting back to work this week, so too are state lawmakers who often have a habit of introducing legislation that, while limited to their own state, is important because of how it could potentially spread if not found unconstitutional. One of those laws was introduced this week in the Washington State legislature where Sen. Doug Ericksen introduced legislation that would increase penalties for economic disruption from a misdemeanor to a felony with up to five years’ imprisonment4.
Exactly what is Ericksen upset about? Well, remember all those protests that occurred after the election last November? One of the nation’s largest was in Seattle, where thousands of people took to the streets to protest the electoral outcome. One of the consequences to those protests was that stores were not able to open or conduct business as usual. The Senator, and those who think like him, see this as economic disruption and their intent is to hold someone responsible for events such as this.
This is kind of scary because it very blatantly flies in the face of that little line in the US Constitution that prohibits “abridging … the right of people to peaceably assemble.” What Ericksen is going to argue is that such protests are not “peaceable.” Windows are sometimes broken. Looting sometimes occurs. What he’s looking to do, however, is shut down vocal opposition by threatening event leaders with imprisonment and a felony record. I cannot emphasize how every dangerous it is that such a law was even introduced. Watch this one closely, and don’t be afraid to protest.
A bit of good news
If there is an apparent bit of good news, it is that Americans are buying a lot of new vehicles. For the second year in a row, US car and truck sales have set a record, this time some 18.4 million of them, an increase of 0.4 percent over 20155. This would seem to be proof that America’s economy is genuinely stronger than has been perceived. The average price for a new vehicle is somewhere in the neighborhood of $35,000. That means a lot of people are spending considerably more than that. When one factors in the interest on a standard five-year loan, what we’re actually spending on those new cars is north of $100,000.
Of course, for the economy, this appears to be very good news. Stock prices for GM, Ford, and Toyota, the new “big 3” in American auto sales, were all up yesterday, as were a number of other car manufacturers. The best-selling vehicle continues to be the Ford F-150 pickup, and pickups, in general, are still the best-selling class. While December sales involved some very heavy discounts, on average around $4,000, GM says that per-vehicle sales, even with discounts, were still up some $740 from the month before.
Major sales such as automobiles are key economic indicators that not only show that we’re willing to spend money, but that we have enough confidence in the economy to make a long-term commitment. While some economists had expected a slowdown toward the end of last year, that doesn’t appear to be happening. The good news wasn’t so good for Fiat Chrysler, however, as sales there slid ten percent. Not everyone gets to be a winner.
And then the bad news
While we’re busy buying a lot of trucks, what we’re not buying are clothes and pots and pans from major retailers. Two retail giants, both Macys6 and Sears7 announced significant store closings yesterday in the face of continued declines and an absolutely horrible sales drop in the month of December. Macys is closing 68 stores by the end of the year and Sears will be shuttering some 108 Kmart stores and 42 Sears stores by April. This is on top of additional closings both stores had announced last year.
Additionally, Kohl’s says its sales were down dramatically as well, but they have yet to announce any store closings. The general retail sector as a whole took a huge hit in the last quarter of the year, with Black Friday and other holiday sales failing to generate the level of revenue generally expected during the final month of the year. Online sales and sales at niche boutiques are getting a lot of the blame for the woes at traditional retailers, with even discounters such as Wal-Mart showing slower sales than the same period last year.
This probably says something about American’s priorities that we’re buying big-ticket items like trucks and SUVs but not so much clothes and household items. We’re much more willing to hold on to the clothes and things we already have while the improved safety and fuel conservation of newer vehicles seems to be a particular draw. Where we’re spending, we are still being very careful to justify our purchases.
And that’s all we have time and space for today. We’re keeping a close eye on everything going on, including Congress and the weather. As always, no matter where you are, if you have to be out, please be safe. We’ll do the same and be back here with more stuff you should know tomorrow.
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