The holiday season of 2008 may go down in history as one of the biggest nail-bitters in the last few decades. Motley Fool analysts have assessed the state of retail going into this critical season -- the stocks, sales strategies, consumer trends -- and identified the winners and losers at the mall and in investors' portfolios. Click here for the complete report.
Window-shopping is clearly on the rise. Actual shopping -- as in buying things while you're at the store -- is not.
Holiday store traffic is expected to decrease by nearly 10%, according to retail researcher ShopperTrak RCT, and retail sales are predicted to increase by just 0.1% -- both record lows since the survey began in 2001.
It's no wonder retailers are taking desperate measures to get browsing customers to open their wallets:
- Wal-Mart is matching advertised toy prices from any rival establishment.
- Credit is so tight that back-to-the-'80s style layaway is making a comeback at Kmart and TJX's TJ Maxx.
- Chichi stores such as Saks are opening up their formerly private sales to the public.
- Retailers with e-commerce operations, such as Nordstrom, are lowering the minimum purchase amount to qualify for free shipping.
- Email is key for stores such as Target, which is mining its email lists to blast customers with up-to-the-minute promotions -- sometimes daily.
- At DealNews.com, where shoppers go to find out where to get the best price on everything on their shopping list, CEO Dan de Grandpre reports that compared with site usage last year, people are browsing more and buying less -- by double-digit margins.
- Even high-end retailers such as Tiffany
(NYSE:TIF)are offering delivery specials such as free shipping -- sometimes with no minimum purchase and other times for $150 or $125 minimums.
For the patient consumer, further markdowns are definitely in store. For nervous investors, it's going to be a long, rough holiday season.
What's really in store
One of the most important components -- and often an overlooked one -- in analyzing retailers is visiting stores to see how busy they are, eyeballing inventory levels, and making sure merchandise is in style and aligned with the target demographic.
With Black Friday around the corner, we trekked out to a local mall and hit up some of shoppers' -- and investors' -- favorite stores to scope out the holiday shopping scene.
We weren't there to buy, and apparently, neither were many of the customers at the mall. Wading through a sea of excessive inventory in nearly every store we visited left little cheer in our outlook for the holiday season. Based on what we saw, we're pretty confident that we're in for a black-and-blue Christmas.
Mall crawl, Fool-style
Instead of loads of bags, we left the mall with loads of observations. Here are a few:
Gap: To put it bluntly, we felt lost in this store. If management is as disorganized as its stores, it's easy to see why the company is struggling. Inventory was piled and scattered everywhere. And we'll be seeing "30% off!" signs in our sleep after visiting Banana Republic, where literally every item appeared to be marked down. Of course, seeing no change at Gap is nothing new for us.
Macy's: After staring in utter disbelief at some of the ugliest things from Crocs
Abercrombie & Fitch: Near darkness … pulsating music … the overwhelming scent of cologne. Pretty happening, right? Not. Abercrombie was just about as empty as a tomb. And when a store is all set to sound like a dance party but there are no dancers, that can mean just one thing: There's a lame holiday coming your way.
Nordstrom: At least Nordstrom looked like a class act, as usual, with inventory tastefully arranged and not making you fear you're about to be squashed by an avalanche of precariously piled clothes. When we visited the Deckers
Coach: The Coach store was peppered with priced-to-move gift ideas -- wallets, small holiday clutches, perfumes, and jewelry -- manned by an engaged sales staff. To keep customers coming back throughout the entire holiday season, the company (which is a Stock Advisor recommendation) changes the assortment of offerings every three weeks or so. The company's newest fare, featuring a revamped Coach logo, was on full display at department stores, particularly Nordstrom. It's a good holiday strategy for the company --capture gift-market sales in its own locations and test-drive higher priced fare in department stores. Coach needs to hit the right note on three fronts -- price points, style, and foot traffic -- if it wants a winning holiday season.
A taste of results to come
Sometimes, a trip to the mall can tell you a lot about retail stocks. Although such a trip is anecdotal and the result can vary in different malls in different geographical regions, astute and observant investors can collect a little bit more data to color their investment decisions than from looking at historical numbers alone. (If you're not a discerning shopper, bring one along to offer valuable feedback on the merchandise.)
Given the number of sales and the glut of inventory that was already apparent -- a week before Black Friday -- it appears that this going to be the difficult shopping season many anticipate. Consumers may be gearing up for a really crazy game of chicken in demanding even lower sale prices.