Industry news, views and occasional strange stuff.
It seems like discount retailers did well. Wal-Mart was up. Costco was up. Target was in positive territory. And specialty retailers that also carry lower-price fare did well. Most department stores did poorly. As they announced last week, Macy’s did not report same-store sales this month.
I’ll post ICSC’s figure when it comes out. See the results after the jump.
For years many regional malls have been gracious enough to open their doors early to allow in mall walkers–typically seniors looking for some exercise in an enclosed climate. Recently, a mall outside Detroit raised the ire of some walkers by pushing back the opening of the property for mall walkers by one hour, from 7 AM to 8 AM, and restricting access to the center’s second level. The mall walkers didn’t take kindly to the changes. The New York Times has more:
The mall walkers were incensed by the changes. They circulated a petition signed by more than 200 people, which they sent to the mall owner, the Simon Property Group. A local newspaper, The North County News, ran a cartoon with the caption “The Cane Mutiny,” which depicted sneaker-clad elderly citizens waving canes threateningly at a man holding a sign displaying the new policy. When newspaper reporters and a cable television station went to the mall to cover the story, they were ordered off the premises.
The conflict illustrates a paradox of life in suburbia, where much of the commerce has moved into big shopping centers. Many people think of local malls as they would town squares — or at least as the once-thriving downtowns many malls have replaced. People consider malls public space, where they have the same rights and privileges as they would on a public street.
But malls, in fact, are private property, as various court rulings have spelled out, and their owners have a legal right to restrict not only entry to the premises, but also the First Amendment rights of those inside. Malls are within their legal rights to toss out mall walkers and journalists alike if they choose to.
Talk about weird. Explosions have occurred at two different strip centers, one in Illinois and another in Georgia, in less than two weeks. Eight suffered injuries in Illinois in an explosion that was thought to be caused by a gas leak. Police are not sure what caused the blast in Georgia, where no one was hurt.
We all know that same-store sales have been hurting for a couple of months for the industry. And some retailers have been posting weak figures for even longer. So what are some, including Macy’s, thinking of doing as a response? They want to stop reporting the figures.
The way I always understood it is that same-store sales were the most reliable metric in understanding a retailer’s health. It is more accurate than total sales because same-store sales show growth year-over-year on a stable base of stores. Total sales can grow even if same-store sales drop if a retailer opens a ton of new locations. But that would hide the fact that either the company is cannibalizing its own sales or that other troubles may be lurking with customers beginning to turn away from the brand.
Without same-store sales, what will the next best metric to look at be? I don’t think total sales will satisfy anyone. But does this just mean we look at net income per share and nothing else?
When Macy’s Inc. decided this week to withhold its monthly same-store sales, the department store chain joined a growing list of publicly traded companies going mum over one of the most commonly used yardsticks for measuring a retailer’s health.
Sears Holdings Corp. Chairman Edward Lampert stopped reporting monthly sales for Sears and Kmart after he took control of the company, calling the metric “vastly overrated.” Home Depot Inc. did the same in 2006, arguing that since its supply business was expanding, it no longer was a pure retailer and, therefore, the measure wasn’t as relevant.
“With Macy’s dropping out, we’ve got fewer than 50 companies now,” said Frank Badillo, senior economist at TNS Retail Forward, a Columbus, Ohio-based market research and consulting firm that tracks monthly retail sales. “That list was 60 or 70 a few years ago. We track it because it does provide some monthly gauge of what is happening in retail, but you have to take it increasingly with a grain of salt.”
Some of the retailers that recently withdrew from reporting monthly sales are CVS, Pier One, Talbots and Dress Barn. Karen Hoguet, Macy’s chief financial officer, told analysts that its decision “could be misconstrued as trying to cut back” on information, but, she said, “our hope is that you will find the information we do provide going forward will be just as meaningful.”
When asked why Macy’s and Sears abandoned their long-standing practice, economist Peter Morici said: “The reason those guys don’t want to report same-store sales is because they’re in a lot of trouble. They have a broken business model, and they would sorely wish analysts would pay less attention to what they’re doing. They’re trying to hide.”
The debate over whether same-stores sales is overrated has been around for many years. Wall Street likes the monthly number because it provides a window into how consumers are spending during key periods, such as the holidays or back-to-school. Retailers often get frustrated reporting the monthly figure because, taken at face value, it doesn’t give a full picture of what is going on.
Easter falls in March this year, for example, and occurred in April last year. That means shoppers are going to spend more in March this year, making it look better, and spend less in April, making it look worse.
“Unless you look deeply, people make snap judgments,” said Carleen Kohut, chief financial officer at the National Retail Federation, a trade group in Washington.
The restaurant industry has fallen, and it can’t get up. To add insult: The worst may be yet to come.
Same-store sales are sliding. Commodity prices are climbing. Units are closing. Customers are dwindling. Some of the top names in all ends of dining are in pain, from Starbucks to Applebee’s to The Cheesecake Factory.
“Whether or not the rest of the economy is in a recession, the restaurant industry certainly is,” says Ron Paul, president of restaurant researcher Technomic.
The financial squeeze is hitting hardest at dinner. Dinner traffic fell 2% last year, says research giant NPD Group. Lunch is slowing, too, says Dave Jenkins, president of NPD’s U.S. foodservice business.
Link.
During Gap’s earnings call Chairman and CEO made an interesting comment about the company’s real estate footprint:
“With over 40 million square feet of leased space, the real opportunity is reducing square footage per point of distribution and less so in reducing location,” he stated.
I’m not entirely sure what that means. Does that mean that Gap is looking to make its stores smaller rather than considering closings? And if so, how would it do that? Or does that mean that they’ll redesign stores in order to pack in more inventory in their existing locations?
I spotted this at VMSD.
Restoration Hardware Inc. has determined that the most recent Sears Holdings proposal to acquire is not better than one already on the table from Catterton Partners.
A “go-shop” period during which Restoration Hardware was permitted to encourage alternative proposals to the $179 million bid it accepted from Catterton in January ended on February 28. During that period, Restoration Hardware said it made numerous efforts to engage with Sears, which had previously made its own offer for the multichannel specialty retailer, but did not receive a proposal until the final day.
After considering the terms of Sears’ proposal, an independent committee determined it “was not likely to result in a superior proposal,” to the one offered by private equity firm Catterton, “because, among other considerations, the proposal was subject to significant uncertainties” compared to the other deal.
Link.
In other Sears news, Eddie Lampert outlined some plans for boosting Sears’ fortunes.
“Our profit margins continue to lag our competitors,” Lampert wrote. “We intend to manage the company’s expenses and our inventory position more tightly in 2008.”
In the shareholders’ letter, Lampert raised the possibility that Sears could sell some of its brand-name products, which include Craftsman tools and Kenmore appliances, through other retailers.
Lampert said Manning’s comeback story “reminds me of what we went through a few years ago with Kmart.” Kmart had been “given up for dead,” Lampert said, but it returned to profitability in 2004.
Here are two clips from CNBC with pros debating the fate of commercial real estate.
The first features Jeffrey Schwartz, Prologis chairman & CEO and CNBC’s Erin Burnett. The second is a debate on whether or not commercial real estate is the next subprime with Darrell Wheeler, Citigroup Global Markets; Howard Davidowitz, Davidowitz & Associates; Harvey Green, Marcus & Millichap; and CNBC’s Michelle Caruso-Cabrera. (Thanks to Deal Junkie for spotting these.)
In the debate, Davidowitz cites figures from Goldman Sachs on estimated writedowns in the neighborhood of $180 billion. The same statistics were featured in an Wall Street Journal article yesterday.
(Click on the chart to make it larger)
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A team of Goldman analysts predicts the financial damage from commercial real estate could last as long as two years, which would mean “a significantly longer tail than subprime.” That is because only 28% of commercial-real-estate loans have been packaged into securities since 1995, while about 80% of subprime loans have been securitized; the higher level of securitization subjects the subprime assets to more-immediate mark-to-market accounting, which is playing out in the form of the write-downs that are dominating headlines.
Wall Street has set itself up for a hard fall in commercial real estate. Banks and securities firms are facing exposure from loans and financing commitments made on commercial-real-estate projects, property they own directly and commercial-mortgage-backed securities that no one wants to buy.
How much worse the write-downs get likely depends on the economy. “If we go into a deep recession, as implied by the various indices looking at the fixed-income market, the write-downs could be bigger in coming quarters,” says Richard Bove, an analyst at Punk Ziegel & Co.
These statistics reinforce the losses implied by where CMBX indices have been trading lately, something I wrote about a couple of weeks ago and that we reported on in our January issue.
Are things really looking this bleak?
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