Holiday Figures Show Target With Strong Results; Gap Falters, Sears Slips

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COLUMBUS, Ohio (AdAge.com) -- With dozens of retailers reporting December sales results today, the holiday retail story is one of consumers spending big at high-end luxury retailers (Nordstrom and Neiman Marcus) and trendy niche apparel brands (Abercrombie & Fitch, American Eagle, Aeropostale and New York & Co.). And at Wal-Mart’s cheap-chic rival, Target, rather than at Wal-Mart.
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Holiday sales results represented a reversal of fortune compared to Wal-Mart’s strong showing in November, when door-busting sales helped the chain best rival Target for the first time in 18 months.
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Reversal of fortune
Indeed, it was a reversal of fortune compared to Wal-Mart’s strong showing in November, when door-busting sales helped the chain best its rival for the first time in 18 months. December results vindicated Target, though, with the discount retailer reporting comparable-store sales of 4.7% on sales of $8.4 billion, compared to Wal-Mart’s weak showing of 2.2% on sales of $40.8 billion.

Analysts pointed to macroeconomic influences such as high-energy costs and consumer debt loads when making sense of the riddle behind the stream of holiday sales results. In addition to macroeconomic influences, some analysts blamed Wal-Mart’s upscale, celebrity branding push in a series of “Home for the Holidays” spots for retailer's worst holiday showing since 2000.

Wal-Mart ads faulted
“A commercial with a mom talking about getting bargains at Wal-Mart and making ends meet probably would have worked better than seeing Beyonce Knowles open a present,” said Ken Perkins, a research analyst with Retail Metrics. “Wal-Mart wants to go upscale and capture more of Target’s market, but Target is fairly well entrenched.”

As the first holiday campaign orchestrated by new Chief Marketing Officer John Fleming, it began earlier than ever -- on Nov. 1 -- and five days earlier than Target’s ad push. Spots featured celebrities like Beyonce Knowles opening gifts at home with family and Queen Latifah shopping for gift cards with her mother.

“Wal-Mart's lack of an aggressive advertising campaign after Black Friday likely impacted traffic and ticket, as competitors were very promotional,” wrote Citigroup’s retail analyst, Deborah Weinswig.

“It all suggests that the low-income consumer is feeling the most stress,” said Steve Spiwak, an economist at Columbus-based research firm Retail Forward. “Target’s core customer is more immune to macroeconomic pressures.”

Comparable-store sales
Today’s steady stream of December sales results definitely back this view. After all, if you take Wal-Mart out of the picture all together, overall comp-store sales rose a robust 4.3% during the month, according to a Retail Metrics index of 65 publicly traded retailers. Put Wal-Mart back in the mix and overall retail comparable-store sales rose just 2.2%.

Mr. Perkins of Retail Metrics said in addition to targeting the struggling working class instead of high-end shoppers, Wal-Mart might have fared better offering door-busters throughout December, instead of limiting the strategy only to Black Friday. Still, Mr. Perkins added: “Many of those are loss leaders and it’s difficult to do day in and day out.”

So what does it all mean if the world’s biggest retailer is stumbling, even as it mimics the upscale strategy of its successful rival?

Ironically, while the upscale move might be hurting Wal-Mart in the short term, it highlights why it must remain Wal-Mart’s long-term strategy, said Joseph Beaulieu, a retail analyst with Morningstar. “The advertising is just way ahead of the in-store changes,” said Mr. Beaulieu, noting that he recently visited a Wal-Mart next-generation prototype store in Bentonville, Ark., which differed dramatically from the typical Wal-Mart in-store experience, from an expansive electronics department to an alluring women’s apparel section.

Years of store upgrades
“They are trying to both improve their image and the actual reality, and it takes money to do that and time. A large store base works against them. It’s going to take years of dedicated effort in both branding and merchandising and store upgrades to change consumer’s minds.”

As Wal-Mart slowly shifts course, Mr. Spiwak of Retail Forward said, it’s important to note billions are still being spent at the world’s largest retailer and the entire retail sector remains surprisingly healthy.

“Today’s results really only call into question whether those ads resonated with their customer base,” Mr. Spiwak said, adding that it's critical other retailers grab and cement market share as Wal-Mart transitions. “Consumers are getting picky about where they shop and may only spend money at their favorite retailer,” Mr. Spiwak added.

The Gap’s gap
One old favorite seems to be struggling. Gap Inc. dropped all TV advertising in December to instead focus on an “It’s my favorite gift” theme via a 32-page “magalog.” The struggling chain posted a sharp 9% drop in comp-store sales in December, compared to a 1% decline last year. All three of the Gap’s retail brands suffered, with Old Navy and Gap stores each down 10% and Banana Republic declining by 5%. Year-to-date, the company’s overall comp-store sales declined 5%.

Even though the lack of advertising clearly hampered sales, Mr. Beaulieu of Morningstar said, “It was probably smart to pull because even if they did get them in the store, there was very little appealing for people to buy anyway. At this point they need to be more driven by merchandising than advertising.”

While the Gap’s specialty-mall locations and celebrity branding strategy may not be the winning formula anymore, it’s working for New York & Co., the mall-based chain that is less than one-sixth the size of Gap Inc. with 527 locations. This fall, the chain launched a print and in-store ad campaign featuring Desperate Housewife Eva Longoria.

Apparently, the housewife is striking a chord -- driving comp-store sales to 12.9% in November and 10.9% in December. The results appear to be the makings of a retail turnaround story. After all, during the same period last year, the chain posted a decrease of 5.5%.

Federated, Kohl’s up
In the mid-tier department store sector, all eyes were on Federated Department Stores, especially considering the holiday season was the first in the post-May merger environment (the deal closed in August 2005). Comp-store sales rose a respectable 3.4% for Federated, compared to 1.1% during the same period last year. CEO Terry Lundgren noted in a statement released today that customers responded to the chain’s focus on “affordable luxury” goods.

Meanwhile, Kohl's Corp., which during the holiday season began running branding spots -- notable since the chain’s TV advertising typically screams sale, sale, sale -- stumbled slightly. Although the 732-store chain’s sales jumped 16.2% for the five-week period ended Dec. 31 and comp-store sales rose 4.6%, combined comps for November and December were lower than expected, and the company now expects to log a 3% increase in comps for the fourth quarter.

“Kohl’s is up against a lot of competition, including Target, Wal-Mart and a resurgent J.C. Penney,” Mr. Perkins of Retail Metrics said. “Kohl’s hasn’t found its proper place in the market.”

That resurgent J.C. Penney reported a disappointing 2.2% comp-store sales increase for December, up from 1.1% gain during the same period last year. The company’s combined November/December results fared worse -- 2.7% v. 3.1% last year.

Sears slips
Sears Holdings Corp., despite heavy spending behind the Sears brand with its “Wish Big” ad campaign, reported today that comp-store sales for the nine-week period ended Dec. 31 at Sears were down a whopping 11.9%. Sibling Kmart fared better, with comp-store sales up 1%. Although Sears Holding released comp-store sales figures, the company will not release actual store sales figures until its fourth quarter filing March 15.

In the wholesale club sector, the anti-advertising marketing strategy of Costco Wholesale, the nation’s largest wholesale chain with 346 U.S.-based stores and 125 international locations, continues to pay off. Comp-store sales in the U.S jumped 6% and 8% for the five weeks ended Jan. 1, with overall sales growing 10 % to $6.37 billion during the same period.

Wal-Mart Stores’ Sam’s Club saw comps rise just 3.6% on sales of $4.6 billion.

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