FROM THE DESK OF DEBORAH WEINSWIG

As the battle for all those procrastinating holiday shoppers heats up, brick-and-mortar retailers are pulling out all the stops to lure customers into the stores. One highly effective tactic this season has been "click and collect," which offers customers the convenience of online with the speed of same- or next-day delivery—and hopefully sparks a few impulse purchases in the process. In an especially inspired variation on this theme, Kohl’s this week announced that it will keep its stores open for 100 straight hours between December 19 and December 24. The chain is using this marathon stretch to allow shoppers to take advantage of its “order online, pick up in the store” option. Will others follow suit? Promotional activity remains fierce. Retailers are striking while the iron is hot: As we saw with the recently released November US retail sales, consumers are finally starting to respond to the stimulus of lower gasoline prices and a healthier economy. Excluding the volatile auto segment, sales rose 0.5% in November, up 4.3% YoY. That’s twice the annual 2.2% growth we saw in November a year ago. Staple categories such as health care and personal care (i.e., drug stores) and restaurants continued to capture most of this increased spending power. Both are strongly outperforming this year, as are building materials and electronics stores. Though general merchandisers’ sales showed momentum in November (rising 0.5%), they continued to lag for the year, reflecting a 1.1% YoY drop in the department store subcategory. Notably, clothing and accessory store sales also outpaced overall retail sales for the month, rising 1.2%, likely hoisted by holiday promotions. Even so, the category is still trailing for the year so far. Meanwhile, online retailers posted a 1.0% gain for November, up 8.7% YoY.

US Retail Sales (Percent Change)

Through November 30, 2014 Source: US Department of Commerce

US WEEKLY TRAFFIC AND SALES

Sales Edge Higher but In-Store Traffic Slumps amid Stiff Online Competition

Note: The ICSC-Goldman Sachs index is a statistically derived estimate of industry sales that is weighted by sales volume.

• ICSC shows the most robust retail sales growth in nine weeks (up 2.9%), thanks to strong performances at wholesale clubs and electronics stores
• ICSC reported that sales gained 4%-4.5% for the week, helped by lower gasoline prices
• According to ShopperTrak, US store traffic dipped (-3.6%) and apparel traffic was the worst in six weeks, as Cyber Monday deals took center stage. Electronics and wireless store traffic rose by mid-single digits

RETAIL HEADLINES OF THE WEEK

Selected Retail Company Earnings Results

Source: Company reports *Hudson's Bay numbers are reported in Canadian dollars. The YoY changes reflect acquisition of Saks Fifth Avenue **Inditex reported nine-month results, ended October 31. All results are in Euros

Reports Strong 3Q Growth, Led by Consumables (December 5) Company reports

• Same-store sales grew 2.8%
• Growth was led by rapidly expanding market share in consumables, especially in tobacco products, perishables, candy and snacks; home and apparel categories are also going strong
• Total merchandise inventories were $2.79 billion at quarter-end, up 2% YoY on a per-store basis
• The company remains committed to acquiring Family Dollar (an update on the offer is slated prior to Family Dollar’s shareholder meeting on December 23)
• Management lowered full-year guidance for sales growth to the lower end of 8% from 8%-9%, and for same-store sales to 3% from a 3%-3.5% range

Narrows Losses on Strong Off-Price Business and Synergies at Saks Fifth Avenue Acquisition (December 9) Company reports

• Consolidated comps rose 2.7%, reflecting gains of 19.2% at its off-price chain Saks Fifth Avenue OFF 5th, of 1.7% at its Department Store Group (DSG) and of 1% at Saks Fifth Avenue
• CEO Richard Baker identified strategic growth areas: digital sales, OFF 5th and the expansion of Saks Fifth Avenue and OFF 5th to Canada
• Men’s apparel, ladies’ shoes, cosmetics and Topshop/Topman drove sales gains at DSG; men’s wear, accessories and fragrance led sales growth at Saks Fifth Avenue; and strong sales across categories at OFF 5th
• Reaffirmed guidance: total sales $7.8 billion-$8.1 billion; low-to-mid single digit comp growth, driven by strong digital sales; capital spending of $380 million-$420 million

Benefits from Membership Fee Growth and Lower Gas Prices (December 9) Company press release and conference call

• Same-store sales rose +5%, with US up +6% and international up +1%
• The 6% growth in membership fees offset for the nearly 7% increase in merchandise costs and higher SG&A
• Costco’s sales got a boost from lower gasoline prices, as customers filling their tanks at Costco’s gas station likely ended up spending more in the store

Strong YTD Results; Rapid Global Expansion (December 11) Company press release

• Same-store sales surged 10.5% for the nine months ended October 31
• Global expansion remains on track: Zara opened a global flagship store in central Shanghai on November 29. Inditex opened 230 new stores in 50 markets in 2014 so far
• Inventories were €2.3 billion at quarter-end, up +20% YoY

Source: US Energy Information Administration

US MACRO ECONOMIC UPDATE

US Wage Growth Remains Lackluster

US WEATHER ANALYTICS: Week of Dec. 14 – 20

Much warmer temperatures across the country

• A mild December continues across the Northern Tier states
• Weather across the Great Lakes and Northeast regions will begin mild and end cold for the week. Overall, major markets in the Midwest, Northeast and Mid-Atlantic region will trend warmer than last year
• Rain is expected from the Northwest to the Southern Plains
• The prospects for snow continue to be limited to a few markets along the Northern Tier states and mountain regions in the West  Weather-driven demand: Outwear +1% versus a year ago

CHINA HEADLINES OF THE WEEK

Walmart retrenches in China (December 1). Walmart plans to cut 250 employees from its China division, as the retailer moves to restructure its business, contain costs and improve slumping sales in the country. Walmart said it will close its northern regional office in the city of Dalian and is consolidating its management structure. The affected 250 employees include mid- and lower-level positions, accounting for less than 1% of such workers in China. The Wall Street Journal Best Buy exits retail market in China (December 4). American electronics retailer Best Buy ended its physical retail presence in China after selling Jiangsu Five Star Appliance to Zhejiang Jiayuan Real Estate  Group for an undisclosed amount. Best Buy will exit the China market except for its sourcing and private-label goods operations, to focus on its core US operations. Jiangsu Five Star Appliance, acquired by Best Buy in 2006, currently operates 184 stores in China. The Wall Street Journal Global luxury brands see slowing sales in China (December 9). Prada, a fashion and luxury goods group that owns Miu Miu, Church’s and Car Shoe announced that the net income for the first three quarters declined by 27.6% YoY, to €319.3 million. During the period, the retail channel contracted by 4.3% YoY as a result of a general slowdown in demand, particularly in Hong Kong and Macau; net retail sales in the Greater China market also fell by 4.1% YoY. Prada said it will focus on the development of Miu Miu and Prada men’s business.  Other global luxury brands also reported slowing profit growth, partly attributable to weaker sales in China. Gucci’s 3Q sales decreased by 1.6% YoY; Burberry’s first-half 2014 profit fell 12.4% YoY and Richemont’s first-half 2014 operating profit also dropped 4% YoY. China Business News Daily Alipay expands overseas transport card service for Chinese tourists (December 1). Alipay, Alibaba’s third-party online payment platform, announced that it will offer its Alipay Overseas Transportation Card services, which will allow Chinese tourists to purchase public transportation passes via the Alipay Wallet app, in Singapore, Thailand and Macao in Yuan before they leave the Chinese mainland. They can collect their transportation card at designated counters at airport upon touchdown with an e-voucher. Alipay will roll out the service for Chinese visitors in South Korea in the near future. Alizila