Second-quarter sales reports confirm that retail business has improved.
Many retailers – among them Kohl’s, Walmart, Sam’s, Target and TJX – report that customers have been shopping more. A report by the analytics firm Retail Next indicates that July overall sales showed the smallest drop since January 2016, dropping 5.5%, compared with 8% last year. While not every retailer has turned around, the positive trend is expanding and suggests that more gains can be achieved.
What I see supporting the momentum of these results:
- Retailers have been implementing strong back-to-school promotions. The reports all indicate that this season is likely to be stronger than last year.
- Store-based promotional activity is likely to continue at a strong pace. The recent Macy's Saturday one-day sale that included Friday and Sunday is evidence of the intensity of the promotions.
- The consumer has more confidence. There seems to be pent-up demand and some employment gains that could offset the political uncertainty. Coupled with ongoing promotional energy, that should motivate customers to shop.
- Inventories are very much in line with sales expectations. Markdowns have been taken, including a cleanup of first-quarter left-over merchandise that may not have been initially reduced sufficiently to move it off the shelves.
Of note, beyond the individual store activity, I was just notified by Discover Card that their members have exclusive deals that are quite attractive. The offers extend to many retailers, some of which have yet to regain momentum, so this can generate new sales energy. For instance, Macy’s shoppers get a 10% cashback bonus at Macy’s online, Walmart shoppers get a 5% cashback bonus online, and Apple also grants a 5% cashback bonus online. There are deals from many other retailers, including Sam’s Club, Best Buy, Bloomingdale’s online, Gap, Footlocker, Saks Fifth Avenue online and North Face online, so that customers are encouraged to shop with their Discover cards for exclusive deals. I think this should generate additional business for retailers, even as I find it interesting that many chose to limit their offers to online shopping only.
The only issue I continue to worry about is whether retailers can indeed keep fresh, exciting merchandise ready for their customers. It’s good to see better inventory positions, but there needs to be more agile management of assortments that excite customers. The customers demand from retailers a quicker turn and a faster response to their wants and needs.
CEO Richard Hayne of Urban Outfitters blames a 54% decline of profits in Q2 on poor execution and feels there is enough newness to drive positive sales. He acknowledged the softness early on, but his mea culpa reflects just that long-term planning and ordering process continues to hamper so many companies. If Urban Outfitters and others across the industry can break out of that approach, more retailers should start enjoying improved results.
As I indicated in a recent post, I am optimistic that we will see a better third and fourth quarter this year, and this latest information confirms that for me. Plus, since the retail calendar is favorable for holiday shopping and sales, I see a better buying mood of the consumer, and I anticipate a happier season for most of the retail industry. I estimate a 4.3% increase for the holiday season.
