Written by Daniel Latto in Latest News

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January 1, 2014

Many years ago Macy’s and Gimbels, the now defunct department store that used to be on Broadway and 33rd Street, faced off in a daily battle that escalated during the Holidays. Now J.C.Penney occupies some of the very space once home to Gimbels, and once again Mayc’s is battling another neighboring retailer for share of the New York City market. In fact they are fighting for every cent the New York customers want to spend.  One thing is very different today however, and this is that both companies have many stores throughout the United States – Macy’s about 800 and J.C.Penney about 1100—so the battle is on a national stage with every kind of media and marketing tactic employed in the war.

I believe Christmas business has been difficult for both of these giants. J.C.Penney reported an increase of 10.1% for November. That was the minimum expected for the month, given that Super Storm Sandy had impacted the early part of November 2012 setting up an easy comparison.  Also last year, the company had no effective merchandising plan for Black Friday.  Strong Internet sales were a big positive, but certainly helped by the complete lack of attention that was given to e-commerce in the previous year. Macy’s did not announce its sales, but I estimate that sales likely grew 2.5% to 3.5% with Internet sales playing an important role in achieving figure. No doubt, both companies were negatively affected by fewer selling days after Thanksgiving this year versus last year.

December is a different matter. The number of days is the same in both 2012 and 2013 – there are 24 selling days (including Sundays.) However, in 2013 the Sunday after Thanksgiving (maybe it should be called Black Sunday) fell in December while last year it fell in November. My impression of Thanksgiving Weekend 2013 is that customers were tired of shopping by the time Sunday came, and sales were relatively weak on that day.   However, after a little rest on the Sunday post Thanksgiving, the rest of December should play out well until Christmas week.  The fact that Christmas falls on a Wednesday, that makes Tuesday December 24, a short shopping day for last minute gift buyers.  Christmas Eve on a Tuesday is not as good as Christmas Eve on a Monday, as it was in 2012.   Psychologically shoppers feel a greater urgency to shop on Saturday/Sunday/Monday than they do on when they have Saturday/Sunday/Monday/Tuesday to shop, as will be the case this year. As I see it, because of the pull forward of sales into November away from the first Sunday in December combined with Christmas on a Wednesday, December will be a difficult month even with the same number of days.  With little help from the calendar, December will require some strong promotional help.

This past Saturday was a Super Saturday at both JCPenney and Macy’s. The two rivals must have each checked last year’s ad book and came up with the same promotion. Both stores had morning specials. However, I was intrigued by the fact that J.C.Penney advertised “thousands of doorbusters. Thousands? That’s a lot. Maybe too many to be believable. Both stores followed up with Store-Wide Savings (Macy’s) and a Dashing Deal Sale (J.C.Penney) that was valid for Sunday and Monday. Neither retailer is letting a moment go by without ample promotional activity.  Kohl’s, with more than 1150 stores is always a stong’s throw from the others, featured “2 Day Bonus Buys” with special savings. Target was busy with a big toy sale that faced off against Toys “R” Us’ 2 day sale booklet.  Sears (whose slogan “where better happens” is not quite proper English) featured a confusing brochure with specials available Sunday night from 6 to 9 pm for friends and family.

Most stores offered 15% or 25% coupons in their ads, on top of the sales prices. That means that customers will have to be good mathematicians in order to figure out how much they are “saving.” As I have written previously, I think we are seeing plenty of planned promotions that have some profitability built into the “sale” price. It is only when there are additional unplanned markdowns that the gross margins would be eroded. My sales estimate for the Christmas season  for Macy’s is around 3-3½% while I expect J.C.Penney to rack up sales between 8-10% as it recovers from the last year’s disaster.

I expect more promotional activity during the week ahead and strong sales until Christmas Eve. Since time is short, retailers are now anxiously pacing the sales floors and I expect some retailers will have to take drastic action by December 17, 2013 – one week before Christmas Eve – in order to make sure they have clean and lean inventories when the Holidays end. Here is one example of what might happen to some retailers: during the post Thanksgiving period The Gap and Old Navy both put the entire store on sale by giving a 50% reduction, I thought that we pretty dramatic. And the deep discounting continues.  The “up to 40%” off sale that Old Navy ran in its stores this weekend was equally dramatic and indicative to me that the Gap’s management is worried.  I suspect we will see similar actions throughout the retail  industry and once again the consumer will be the biggest winner during the Holiday season, especially those that procrastinate.

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