Increased costs bit US retailers despite higher holiday sales

Business Sunday 13/January/2019 13:44 PM
By: Times News Service
Increased costs bit US retailers despite higher holiday sales

New York: Holiday shopping reports released on Thursday underscored anew the challenges US retailers face in the Amazon era — even if consumers are willing to open their wallets to spend.
The updates were a mixed bag overall, with several retailers reporting small or moderate increases in comparable store sales during the critical November-December period.
But a report from Macy's aroused the most angst on Wall Street, after the chain slashed its profit forecast even as it signaled a modest increase in sales.
Shares in Macy's plunged almost 20 per cent, while nearly every major retailer was pulled down as well.
That included companies like Target that reported higher holiday sales and confirmed — but did not raise — profit forecasts.
The results were an ugly finale to a holiday shopping season that opened with high expectations owing to robust consumer confidence amid a strong employment market, relatively low gasoline prices and a boost from tax cuts.
Mastercard SpendingPulse in December estimated holiday sales growth of around 5.1 per cent to more than $850 billion, the strongest jump in the last six years.
By that estimate, the 2018 holiday shopping season was a strong one — just not for retailers.
"It was a good season. Consumers had more money to spend. They spent it," said retail industry consultant Dana Telsey.
"But the cost of doing business is getting higher."
Eating costs
Traditional brick-and-mortar retailers have invested in heavily beefing up their online platforms and offering incentives to lure buyers, such as free shipping during the peak holiday season.
At the same time, these companies also have spent heavily to improve the in-store experience, hiring consultants to help beautify the surroundings and in many cases employing more workers during the peak festive season.
The latest results suggested retailers still have not found a winning recipe for the transition to the e-commerce era.
"We know expenses are always a problem as more and more stuff moves online because people simply will not pay for you shipping it to them," said retail industry consultant Jan Rogers Kniffen.
"They want it to be the same price in the store in my door. That's just the way it is."
Experts say the retail industry is still undergoing an existential shakeout.
Companies like Macy's, JC Penney and Gap have shuttered stores in recent years, while Toys "R" Us went out of business — a fate that could soon befall iconic American retailer Sears.
Wall Street seeing red
Macy's shares tumbled 18.7 per cent after it reported an increase of 1.1 per cent in comparable sales, but lowered its annual earnings forecast to a range of $3.95 to $4.00 a share from $4.10 to $4.30.
Sales were dented by a fire in a distribution center in West Virginia and a pre-Christmas "earn and redeem" promotional event that was unsuccessful, Macy's said.
"The holiday season began strong," Macy's Chief Executive Jeff Gennette said, "but weakened in the mid-December period and did not return to expected patterns until the week of Christmas."
Target said comparable sales grew 5.7 per cent over the holiday, while Kohl's put sales growth at 1.2 per cent. L Brands, the parent of Victoria's Secret, reported flat comparable sales for the five weeks ending January 5.
Bookseller Barnes & Noble estimated sales growth at 1.3 per cent over the two-month period, adding that its earnings guidance "may be reduced by as much as 10 per cent" due to increased advertising and promotional costs.
Analysts said the declines were exacerbated by expectations that earnings growth will be tough in 2019 after a strong 2018 following the US tax cut enacted in late 2017.
An exception was Bed Bath & Beyond, which surged 13.5 per cent after it projected flat earnings in 2019 instead of the decline that had been previously seen. The company expects investments in store beautification, e-commerce software upgrades and other ventures to pay off more.
The company raised its threshold for offering free shipping to $39 from $29 and required a threshold for delivery of $19 over the Thanksgiving weekend instead of nothing.
"You'll have certain customers perhaps not buy due to the higher threshold and perhaps other customers add something to the cart," said Chief Executive Steven Temares.
"It does have some impact on sales, but it's difficult to quantify."