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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:
Apple (Nasdaq: AAPL ) : The store was bustling as usual, with tons of customers trying out the new line of laptops. Even if consumers gearing up for a recession find the gadgets a little pricey, things looked pretty normal at the store. Sales may not be quite as robust as in previous years, but management is making an effort to add a personal touch to lure in cash-strapped customers by offering free iPod engraving and gift-wrapping on its website. And in comparison with the deserted Sony store right next door, we'd say Apple will certainly be one of the better-performing electronics retailers this year.
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.
Aeropostale (NYSE: ARO ) : It's easy to see why this company has had a successful year. Other than the quality of clothing, Aeropostale's designs are essentially cheaper versions of the duds you find at Abercrombie & Fitch. Teens who must cut back on spending can easily trade down to Aeropostale while maintaining the same look. However, the company looks pretty desperate to move some of the gazillion logo-branded sweatshirts and tees flooding the aisles of the store. Markdowns were scattered throughout the store on a significant portion of the merchandise. Customers could earn a free hooded sweatshirt just by purchasing $40 worth of clothing.
Macy's: After staring in utter disbelief at some of the ugliest things from Crocs (Nasdaq: CROX ) that we've ever seen hanging on the racks at Macy's (pink, fur-lined ballet slippers -- really!?), we nearly lost each other in the knee-deep, distracting piles of inventory all over the store. It looked to be filled with enough merchandise for the next three holiday seasons. Management's clearly aware of the situation. But despite the frequent "50% off" signs and additional 20% off offered to loyal Macy's cardholders, it just doesn't look like shoppers are taking the bait.
bebe stores (Nasdaq: BEBE ) : This retailer's had its ups and downs over the years. However, one definite thumbs-down for its holiday season was not just that the racks were full of clothing (and it all looked a bit cheaper and chintzier than in years past) but also that there were also piles of large, sealed cardboard boxes sitting around on the floor in plain view. Were these filled with more inventory? One can only hope not, for shareholders' sakes.
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 (Nasdaq: DECK ) UGG section, we came across not sales, but an offer to get a free airbrushed designs on the trendy boots you bought.
Talbots (NYSE: TLB ) : Oh dear, oh dear. The company's J. Jill concept, which it's trying to sell, was virtually deserted when we eyeballed it from its entrance. The Talbots store we ventured into had a lot of sales going on. Although we've heard a lot about its better merchandise, we still thought a lot of the fare looked a bit on the frumpy side and honestly not very festive. We still think this is going to be a tough season for Talbots -- maybe even too tough for it to stand.
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.