Deep discounting that dogged retailers during Christmas is
following them into spring.
From upscale Saks Inc. (SKS) to lower-end Target Corp. (TGT),
retailers are offering big markdowns on items ranging from
cardigans to shorts to summer dresses.
"The markdowns are [being made] earlier on spring goods, and the
percent of discounts are, and will likely continue to be, more
aggressive," said Todd Slater, retail analyst at Lazard Capital
Markets.
Investors may want to take note, Slater said. "With specialty
store shares up 21% and department stores up 19% last week, this
may be an opportune time to take profits and step to the sidelines
for another, more favorable, entry point."
The fact that the spring selling season "is already kicking off
with price-based promotions means that a meaningful turn in
profitability for the industry, particularly the high end, is not
yet in sight," Credit Suisse analyst Michael Exstein said in a
research note.
The price cutting is being implemented despite efforts by
retailers to enter the spring selling season with less inventory,
to work out better terms with vendors, and to carry generally
lower-priced merchandise.
But retailers can only do so much to attract still-cash strapped
and fearful consumers who have become used to buying at big
discounts.
"There is still so much nervousness on both sides," said Tim
Calkins, clinical professor of marketing at Northwestern
University's Kellogg School of Management. "I think we will see
very early and significant discounting in the spring and into the
summer because the last thing retailers want again is too much
inventory."
Fourth-quarter results for the Christmas holiday season showed
just how hurtful too much merchandise can be, producing deep cuts
to margins and clogging shelves and storerooms with out-of-season
items.
"Retailers' approach is again early, but hopefully won't be as
deep" as over the Christmas season when prices that were reduced by
90% were hardly unheard of, Calkins said.
The markdowns are coming before the official start of spring on
March 20, although retailers have been rolling out their new
seasonal merchandise since early in the year.
There have been some nascent encouraging signs, with
stronger-than-expected retail sales activity in January and
February. February's report helped spark a rally in shares of
retailing companies last week that lifted the Standard & Poor's
Retail Index 14%.
Shoppers are hardly out in force, though, said Lazard's Slater.
"Traffic has stabilized, but it is not translating into sales, with
75% of shoppers not purchasing, in our analysis."
The increased promotional activity is taking place inside
stores, at their online sites or both. It involves high- to low-end
retailers and spring and summer staples are front and center.
For example, the spring sale at Ralph Lauren Inc.'s (RL) Web
site features white pants for women marked down to $139 from
$198.
All spring shoes and sandals are on sale at the "Save at our
Total Spring Sale" advertised in the weekly flyer of Sears Holdings
Inc. (SHLD).
Target appears to have coined a new phrase - "frugalista
fabulous" - and is urging customers to "change up your look for
pocket change."
Spring sales were also running at Kohl's Inc. (KSS), outdoor
apparel retailer Cabela's Inc. (CAB) and Macy's Inc. (M) unit
Bloomingdale's.
Saks, the upper-end retailer that was among the first and
biggest discounters during the holiday season, now has hundreds of
women's spring and summer tops, dresses and suits greatly marked
down in its stores and online shop.
Spokeswoman Julia Bentley said the company isn't following the
steep price-cutting path it took over the holidays and the current
markdowns aren't being done more quickly or deeply than last spring
for merchandise that had been on its racks for a while.
Saks prepared for this spring by cutting inventory about 15%
from last year.
But if sufficient business doesn't materialize, "we are
flexible" on making deeper cuts, Bentley said.
Inventory may already be an issue for some retailers. Roxanne
Meyer, who follows apparel retailers at UBS, said: "The majority of
the in-store spring assortments haven't been refreshed yet,"
meaning newer spring merchandise or summer items aren't out on
display at stores.
In her latest checks, Meyer said she saw an increase in the
breadth of markdowns versus her previous visit to Abercrombie &
Fitch Inc. (ANF) and more spring items on sale.
At Gap Inc. (GPS), Meyer saw markdowns on clearance items, while
some earlier spring items were reduced in price by 40% to 45%.
At J. Crew Group Inc. (JCG), there were more promotions and,
while the spring assortment was "compelling, inventory [was] an
overhang," Meyer said.
Aside from Saks, no other retailer named in this report
responded to requests for comment about their pricing approach for
spring merchandise.
-By Karen Talley, Dow Jones Newswires; 201-938-5106;
karen.talley@dowjones.com