DIpil Das
What’s the Story?
We review comparable sales growth and e-commerce performance reported by 15 major US retailers, the majority of which are part of our Coresight 100 coverage list. To provide comprehensive coverage, we have also included the following non-Coresight 100 companies: Boot Barn, Buckle, Destination XL Group, GameStop, Signet Jewelers and Zumiez. We compare overall holiday retail performance with our estimates to analyze what happened amid a coronavirus-impacted holiday period.Why It Matters
US retail enjoyed a strong holiday season overall, with retail sales up by 9.1% compared to the holiday quarter 2019. Although holiday shopping started earlier in 2020, December retail sales were still strong, with 8.6% year over year growth (ex. gasoline and automobiles). This outperformed most firms’ estimates and our top-end estimate of an approximate 5% rise across US retail sales. However, performance varied across the board, with a number of retailers reporting strong comp growth and sequential improvement while others posted sequential declines. We discuss retail sales performance for the holiday peak last year to help to gauge the scale and shape of demand as we head further into 2021.Holiday Comparable Sales Growth: In Detail
Of the 15 companies we cover in Figure 1, 10 posted positive comparable sales growth or total sales growth, with seven of those increasing their rate of growth compared to the same period in 2019. Apparel Brands Levi’s reported its fourth-quarter 2020 earnings on January 17 and defined the holiday period as November and December combined. Adjusting for the impact of store closures, the company estimated holiday revenue to be down 11%, with digital revenue accelerating by 33%. By region, the company reported record sales on Prime Day in the US. Its business in China and India saw double-digit sales growth in December, which the company put down to the return to growth of its direct-to-consumer (DTC) business and changes to the company’s store fleet starting to pay off. VF Corporation reported a year-over-year sales decline of 6% for the quarter ended December 26, 2020. Apparel and Accessories Specialty Retailers Holiday comps reported by apparel and jewelry specialty retailers so far indicate a mixed picture, with retailers such as Boot Barn, L Brands and Signet Jewelers seeing comp increase in the mid-single digits, while comps were down at American Eagle Outfitters and Urban Outfitters. American Eagle Outfitters did not provide a full holiday sales update but released a preliminary fourth-quarter update on January 21, 2021. The company expected its fourth-quarter revenue to decrease by low single digits, due to reduced traffic, store closures and reduced hours related to the pandemic. However, the company saw strong momentum in e-commerce and expected Aerie to increase in the high 20% range in its fourth quarter. L Brands reported a comparable sales increase of 5% year over year for the nine weeks ended January 2, 2021. However, this was driven by its non-apparel banner: Bath & Body Works posted strong comp growth of 17%, including a comp increase of 5% in stores and 64% growth in direct channels. Contrastingly, Victoria’s Secret reported a 9% decrease in comps for the period. The Buckle, Inc., a retailer selling accessories, casual clothing and footwear for children, men and women posted a strong comp increase of 17.9% for the five weeks ended January 2, 2021, mainly driven by purchases of women’s and men’s items. Urban Outfitters saw stronger conversion rates in November and December, but this did not offset the impact of reduced store traffic due to the coronavirus crisis and related restrictions. However, the company saw its retail segment comps rebound in the month of January 2021. Big-Box Retailers Costco and Target posted exceptionally strong, double-digit comps for the holiday season, supported by very strong online demand. Costco reported total same-store sales growth of 10.9% (ex. fuel) for the five weeks ended January 3, 2021 for its global stores—ahead of the consensus estimate of 9.5%. The retailer also grew its global e-commerce sales by 61.6% in the period. Excluding changes in gasoline prices, Costco’s US-only comps grew 11%. Target reported a comparable sales increase of 17.2% in November and December combined. The company’s e-commerce comp increased by 102%, driven by an increase in average ticket sales. The retailer saw strong sales related to its same-day delivery services (Drive Up and Pick Up and Shipt grew 193%). Target’s management disclosed that the home category saw the strongest growth for holiday 2020 while electronics and groceries sales also grew compared to the holiday period last year. Walmart has not yet updated on holiday update sales; it reports its fourth-quarter earnings on February 18. In the company’s earnings call on November 17, 2020, Walmart’s management team stated that the company was making good progress on getting certain categories to higher in-stock levels and believed that it would be a good holiday season. Department Store Retail Nordstrom performed poorly, with the company’s comp sales slumping by 22.0% year over year in the nine weeks ended January 2, 2021—despite 23% growth in digital sales. Nordstrom still expects to deliver positive earnings before interest and taxes (EBIT) and operating cash flow for the fourth quarter of fiscal year 2020, according to company’s press release on January 13. Department store retailers JCPenney, Kohl’s and Macy’s will not be providing sales updates on holiday 2020. Kohl’s and Macy’s will discuss holiday performance on their next earnings conference calls. According to Mastercard SpendingPulse data, US department stores saw an overall sales decline of 10.2%, with online sales growth of 3.3% from October 11 through December 24, confirming that it was a challenging holiday period for the sector. Discount Retail Five Below reported a 10.1% increase in comp sales for its holiday season, spanning November 1, 2020 to January 2, 2021. The retailer pointed to its range and value of offerings in apparel and the flexibility of its operating models as key drivers of its strong holiday sales. Five Below management now expects net sales for the full 2020 fiscal year to be around $1.9 billion, according to its press release on January 12. According to the International Council of Shopping Centers (ICSC), 64% of consumers shopped at discount department stores during the 2020 holiday season (November and December combined), making them the top shopping destinations. Plus, 22% of consumers shopped at dollar/variety/off-price stores, indicating that the overall discount retail sector enjoyed a strong holiday season. The table below presents comparable sales or sales growth reported for the 2020 holiday shopping season, including e-commerce growth and the figures for the holiday 2019.Figure 1. Selected US Retailers: Comparable Holiday Sales, 2020 and 2019 (YoY % Change) [wpdatatable id=723]
Source: Company reports Pandemic-Induced E-Commerce Growth US online retail revenue for the 2020 holiday season (spanning November and December) grew by 32.2% year over year, according to Adobe—in line with Coresight Research’s prediction of 33.5% (albeit we defined the holiday season to include October, reflecting the early start to holiday demand this year). The ICSC found that consumers embraced omnichannel shopping during the holiday, with 91% of consumers making purchases in a retailer’s physical store and via their website. Furthermore, 68% of consumers used a smartphone when making an online purchase in November or December, and 44% picked up their online orders in a physical store, according to the ICSC. We estimate that US online retail sales grew by around 35% in 2020 overall (versus 15.5% in 2019)—providing demanding comparatives for 2021. We expect that total e-commerce will continue to grow, but at a much more moderate pace and that online penetration will plateau or unwind slightly across a number of categories. We currently model low-to-mid-single-digit growth in total e-commerce sales in 2021. Total Nonfood Retail Traffic Total US nonfood retail traffic in the three months of the holiday quarter declined by an average 36.0%—a slightly deeper decline than Coresight Research’s prediction of a 30–35% year-over-year decline. Retail traffic over the Black Friday Weekend at the end of November declined by 42.3%, in line with our estimates of deep year-over-year declines on the traditional Black Friday peak as doorbuster deals fall out of fashion with shoppers and retailers. As coronavirus cases continue to surge in many parts of the US, shelter-in-place and travel restrictions are likely to impact traffic trends in 2021.
Figure 2. US Store-Based Nonfood Traffic and Sales: YoY % Change [wpdatatable id=724]
*The Black Friday weekend comprises November 27–29, 2020 Source: RetailNext