The holidays were rough for many retailers. However, some companies did very well during the "weak" holiday season. Motley Fool Research Analyst Bob Fredeen looks at who was successful in December to see what we can learn for future investing.
 |
|
|||||||
|
||||||||
|
||||||||
By
Christmas 2000 proved to be a shake up and shake out for the retail industry. For those who missed the news, the world is soon to be without two decades-old retailers, Bradlees, Inc. (Nasdaq: BRADQ) stores and GE Capital's (NYSE:GE) Montgomery Wards department stores. On the shake up side, Borders (NYSE:BGP), Gap Inc. (NYSE:GPS), and Wal-Mart (NYSE:WMT) all warned that they would miss earnings forecasts, while both Sears (NYSE:S) and Office Depot (NYSE:ODP) announced a slew of store closings. What went wrong this Christmas? Retail companies threw around a bunch of reasons as to what their problems were. Rising fuel costs -- which both increase costs for retailers and lower the amount of money available to shoppers -- and inclement weather were two of the biggies. Another problem was a drop in consumer confidence; in other words, more consumers were worried that the future would not be as rosy as the past. In some stores, fashion changes and product mix were cited as problems. Wal-Mart even mentioned that sales spiked in 1999 due to Y2K spending, giving the company a harder comparison this year. Considering that it sells food, water, camping supplies, and firearms -- everything you'd need for an End of the World party -- Wal-Mart may have a point. Instead of coming up with fundamental reasons why so many companies had trouble this last holiday season, it should be more useful to look at which companies were successful. Studying these companies can help us figure out what to look for in future investments. Few trends appear in December's Retail Details, but two important points did jump out at me. 1) People look for values. In the specialty retailing segment, home to famous names like Gap, Abercrombie & Fitch (NYSE:ANF), and American Eagle Outfitters (Nasdaq:AEOS), the clear winner was American Eagle. (While Gymboree is listed in the same section, they are actually exclusively a children's retailer.) American Eagle sells clothes for high schoolers and college-aged men and women as demonstrated on WB's Dawson's Creek, arguably American Eagle's greatest marketing tool. While the company competes directly with Abercrombie & Fitch, American Eagle products generally retail at a lower price than Abercrombie's. The final score in December was an 11% drop in Abercrombie's comps and a 12% increase in American Eagle's. While there are other differences, the single biggest difference between the companies is that American Eagle aims for a broader audience, and this is demonstrated in its prices. Another store that focuses on providing great values to its customers is Kohl's (NYSE:KSS). While not a traditional discounter, Kohl's generally focuses on providing better values to customers. The chain recorded a 15% increase in comps in December, largely blowing away other department stores. Kohl's focuses their marketing on the "same brands for less" message, and they did everything possible to get that message out to consumers this holiday season. Focusing on value was not a surefire recipe for holiday success. However, looking forward, I expect companies that have a strong focus on providing great values will be among the success stories of 2001. If the economy slows down and consumers either have less money or think they have less spending money, then value-oriented retailers should be some of the better investments. 2) Demographics matter. The second point I noticed in December's Retail Details is that demographics matter. Looking at successful women's retailers, Talbots (NYSE:TLB) and Chico's (Nasdaq:CHCS) were the obvious winners. More importantly, these companies have been reporting some very impressive comps for most of the year, even when other companies faltered. Both companies seem to target a similar demographic: Baby Boomer women. I suspect that this demographic is one of the most affluent in our society, comprised of people with plenty of purchasing power who are willing to enjoy the fruits of their affluence. These companies seem to have tapped into exactly what their target consumers want, and those consumers are rewarding the companies accordingly. While knowing your target consumer is critical to a retailer, having a large enough target audience is also important. Understanding a target market with the size and purchasing power of the Baby Boomers seems like a pretty sweet spot for a retailer. The power of that sweet spot is clearly reflected in the sales and comps growth that Talbot's and Chico's have enjoyed in the last year. Looking forward We've been looking at the past month to see who was successful over the holiday season, but investors need to focus on the future. Gauging past success, while not a guarantee of future success, certainly gives us some insight into what to look for in our future investments. Keep an eye out for companies that have a strong focus on value for their customers, and a strong understanding of who those customers are. While nothing is certain, companies that focus on these points are often very lucrative.
RSS Headlines
Fool UK
