Analysts and investors remain confident in brick-and-mortar stores.
When the pandemic began to hit the U.S. economy, Abercrombie & Fitch's (ANF) operating outlook became even bleaker.
Abercrombie, known for its "sexy marketing," has captured the hearts and wallets of a large number of teenage consumers, but the company's stock price fell to a new low in 2017, and the changing brand preferences of consumers and the continuous decline in mall traffic have cast a shadow on Abercrombie's future. By March 2020, the pandemic had caused another shock to the company by closing stores and stores across the United States.
Judging from the situation at the time, Abercrombie seemed to be another victim of the "end of the retail industry".
Just as we were dying, an accident occurred: this year became one of the best years for Abercrombie since its heyday in 2000. Led by CEO Fran Horowitz, the company rebranded to unleash a more inclusive message, turning its target to young professionals while fine-tuning the Hollister brand for teens.
In the fiscal second quarter ended July 31, Abercrombie revenue increased 24% year-over-year and 3% from pre-pandemic levels. With cash-rich consumers flocking back to the store to shop, Abercrombie's stock is up 120 percent this year.
In an interview with Barron's, Horowitz said: "Brand perception is a difficult thing to change, and it will take time to regain the trust of consumers, so we are excited to see the results of our hard work." ”
Abercrombie isn't the only retail brand entering a new period of growth. Over the past year, many retailers in the United States have not only crawled out of the abyss, but also taken advantage of the macroeconomic changes brought about by the epidemic to fully recover.
Driven by a stock market rally and impatient consumers, sales of brands that have successfully combined physical and digital strategies have soared, including many large mall retailers such as Macy's (M), Nordstrom (JWN), Famous Footwear's parent company Caleres (CAL) and Signal Jewelers (SIG), The shares of these companies have all risen by at least 100% in the past 12 months.
Major U.S. retail stocks rebounded sharply
Now, these companies are expected to usher in a lucrative holiday season. According to the National Retail Federation, consumer spending could reach $851 billion this holiday season, up 9.5 percent from last year's record $777 billion and more than double the 4.4 percent increase over the past five years.
No one can say whether the shopping spree will continue, and whether the stock prices of these companies are actually factored into future sales in advance. Before retail sales levels return to normal, retail companies must deal with a range of supply chain and inflationary pressures that could dampen sales during the holiday season.
But this unexpected recovery has once again strengthened the confidence of many brands in the power of physical stores. While they are still investing heavily in their online businesses, they continue to bet on the future of brick-and-mortar stores. At a time when investment in brick-and-mortar stores continues to increase, the demise of brick-and-mortar stores, which many once predicted, seems less certain.
Highlights:
What are the rare opportunities that the pandemic has brought while hitting retail?
What are some of the new initiatives taken by large retailers?
Why are consumers (including young people who are keen on online shopping) starting to shop in malls again?
What are the prospects for U.S. retail sales in the fourth quarter and next year? Which areas have the best growth prospects?
Analysts and investors remain confident in the retail sector, what will happen to retail stocks next? Which stocks are worth buying?
The pandemic has clearly hit retailers hard, but it has also created some unique opportunities. The challenge is clear: consumers are reluctant to shop because of the pandemic, and many have switched to online shopping, even a large number of baby boomers. Retail giants such as Amazon (AMZN) and Walmart (WMT) have thus experienced their strongest year of business on record.
"Investor sentiment (especially institutions like hedge funds) has been very negative about retail before," said Mari Shor, a retail analyst at Columbia Threadneedle Investments, "but I don't think investors are giving retail companies and consumers a chance." ”
Sauer said investors' skepticism stemmed from the notion that traditional retailers would not survive either before or after the pandemic.
But the pandemic has given retailers a rare opportunity to close underperforming stores and focus on outperforming stores instead. There are also many retailers that focus on improving the performance of online sales, developing sales strategies based on consumer needs, whether they want to shop online or in-store.
The parent company of Saks Fifth Avenue, a top U.S. department store, is a company that wants to combine digital and brick-and-mortar businesses to drive growth. The company spun off its e-commerce business, which is expected to go public at a valuation of $6 billion.
Such measures have proved to be very important. The National Retail Federation estimates that online and other non-physical store sales are expected to grow 11 to 15 percent this holiday season, possibly as high as $226 billion.
Pedro Palandrani, an analyst at index fund global X researching e-commerce, said: "We believe that the pandemic has not only accelerated the global popularity of e-commerce, but also expanded the size of the market. ”
Abercrombie has invested hundreds of millions of dollars in its digital strategy, emphasizing a smooth transition from digital experiences to in-store experiences, taking initiatives such as improving the company's website, setting up in-store returns, and picking up online purchases. Horowitz said Abercrombie has closed 130 stores and 50% of its flagship stores worldwide due to the pandemic, bringing the total number of stores closed in the past 10 years to about 500, while the company has opened several important new stores under the new strategy.
"Physical stores are important, but it's important to identify their scale, positioning and economic benefits," she says, "and when you combine physical stores with digital technology, it's the icing on the cake." ”
B. Riley Securities analyst Susan Anderson said that physical stores are not only a low-cost way to attract shoppers, but also serve as a key distribution center for online shopping pickup, returns and local transportation. In recent years, even online retailers like Warby Parker have expanded their brick-and-mortar stores to accommodate shopper preferences. Anderson said: "Consumers want to choose when and where to shop.
There will be some unexpected changes in this behavior of consumers. Among teenagers and young adults who are proficient in online shopping, shopping malls and brick-and-mortar stores are becoming more and more attractive to them.
Earlier this year, design firm BHDP conducted a survey of 1,000 shoppers, with 55 percent of young people aged 14 to 17 saying they now shop in indoor malls and 90 percent planning to return to shopping malls next year. Shoppers aged 18 to 24 surveyed have also returned to the mall. Rod Sides, Deloitte's vice chairman of U.S. retail and distribution, said the shift has prompted retailers to abandon old views and assumptions about specific demographics.
The shift in strategy during the pandemic has helped many retailers prepare for the reopening of malls and downtown facilities this year, as well as the urgent need for consumers to unleash their previously repressed desire to spend.
During the pandemic, some consumers received additional benefits, and fewer outings and a spike in the stock market have also increased their cash. Today, consumers of all income levels are saving at or near record levels. A deloitte annual study found that affluent households are expected to spend 15 percent more this year during the holiday season than last year, to an average of $2,624 per household, an important factor driving sales growth during the holiday season.
Mark Zandi, chief economist at Moody's Analytics, said: "Consumers have a lot of cash in their hands and a lot of pent-up demand. ”
According to the U.S. Census Bureau, retail and foodservice sales rose to $625 billion in September, up 0.7 percent sequentially and 13.9 percent year-over-year. Retail sales alone increased by 0.8% sequentially. Veronica Clark, an economist at Citigroup, said: "We had expected some corrections in September, but none. ”
Matthew Shay, president and CEO of the National Federation of Retailers, said at a meeting in October that retailers are in much better health now than they were 10 years ago before the holiday season. Mastercard's annual spending index predicts that U.S. retail sales will grow by 7.4 percent in the fourth quarter, with retail sales of clothing, department stores, jewelry and luxury goods growing significantly.
Luxury retailer Burberry (BRBY.UK) said last week that comparable sales in the first half of fiscal 2022 were up 37 percent, with full-price sales growing at a double-digit rate. Coach parent tapestry (TPR) first-quarter profit exceeded expectations and raised its fiscal 2022 sales and profit forecasts.
U.S. Holiday Quarter Sales 2002-2021 (in $1 billion)
Some analysts are bullish on retail, with analysts at investment bank Cowen saying: "Many luxury brands have successfully raised prices and are likely to benefit from spending by wealthy U.S. consumers and international consumers." Wolfe Research is bullish on companies like Nordstrom and Tapestry, whose analysts wrote in research reports: "Almost all of the major factors driving U.S. consumer spending favor high-end products." ”
At the same time, more and more Americans are starting to buy things in shopping malls. Placer.ai's shopping mall traffic statistics show that the traffic in indoor shopping centers increased by 3% in October compared with 2019, and the traffic in outdoor shopping centers increased by 5%, which is one of the reasons for the surge in shopping mall stocks. Simon Property Group (SPG), which owns shopping mall assets, soared about 90 percent in 2021.
Lindsay Petak, senior marketing manager at Tysons Corner Center, a shopping mall in the Washington area, said: "With the increase in the number of people completing vaccinations, coupled with supply shortages, many people have started shopping for the holiday season ahead of schedule, and foot traffic has been steadily rising since July. The owner of this mall is Macerich (MAC), whose share price has nearly doubled this year.
Changes in the flow of visitors to shopping malls
Blue: Indoor shopping mall Green: Open air shopping mall
All of this further boosted the rally in retail stocks that had underperformed for years. Over the past year, exchange-traded fund SPDR S&P Retail (XRT) is up 85 percent, up from the 33 percent gain in the S&P 500.
This year, the Invesco S&P 500 Equal Weight Consumer Discretionary ETF (RCD) is also 5 percentage points higher than the S&P 500 index, indicating that investors are still bullish on the retail sector.
Shay of the National Federation of Retailers said: "Soon after the economy reopened, there was a significant pick-up in the business of department stores, clothing and consumer discretionary retailers. According to our consumer surveys, department stores have always been a popular destination during the holiday season and will remain the top destination for consumers to shop this year. ”
All of this suggests that analysts and investors are still confident in brick-and-mortar stores, which may not look like online stores, but will continue to exist.
The jury is still out on whether the retail renaissance can be sustained in the long term, and the macroeconomic environment in which retailers are currently located is far from the past norm.
Jefferies analyst Janine Stichter said: "I don't think it's possible to come up with a particularly reliable point of view at this time because there are so many complex issues facing the retail industry as a whole. ”
Retail companies are also grappling with supply chains, inflation and labor shortages that could affect their business performance during the holiday season. Horowitz said: "Supply chain issues are an issue that can have a big impact.
Abercrombie said on a second-quarter earnings call that the supply shortage is expected to have some degree of impact on the company's sales, with the bigger impact coming from higher freight rates.
Citigroup's Clark said retailers are encouraging consumers to shop early to ease supply chain pressures, a trend that could distort sales figures at the end of the year. If consumers have already shopped ahead of time, sales figures for November and December could be lower than in previous years. "It's not necessarily because spending is much weaker, it's spread across different months," he said. ”
On the other hand, Jeffery's Stikett believes that low inventory will give retailers more pricing power, helping to offset the impact of supply chain shortages. Sasha Tomic, an economist at Boston College, said that while this is good for retailers, it could push up prices even further.
Matthew Forester, chief investment officer at Lockwood Advisors, a unit of BNY Mellon, said the retailer's strong performance would not last forever, regardless of the risks. "Overall, the U.S. economy is clearly slowing, and the slowdown trend will continue into next year," he said. In addition, a slowdown is likely to occur at a time when the economy is returning to growth. ”
Forrester said that as stimulus measures continue to dwindle, the economy will eventually emerge from a phase of high growth. He said that while the slowdown was less "scary," consumer spending would be down from current levels.
But with the help of a brick-and-mortar store, Abercrombie is up against the wind. The company plans to increase inventory of goods in stores, direct e-commerce orders to brick-and-mortar stores, and offer same-day delivery with partners like Uber, Shipt and Postmates.
Other retailers have developed their own supply chain solutions. Apparel company American Eagle Outfitters (AEO) recently announced it will acquire Quiet Logistics, an operator of an automated distribution center near the city center. Just a few weeks ago, the company acquired AirTerra, which specializes in mid-tier logistics, i.e. product distribution from warehouses to retailer stores.
Horowitz said: "We will continue to work hard to overcome the difficulties. ”
As retailers struggle, the prophecy of the "end of retail" may pause for a while. The current market sentiment is clear: consumers are rediscovering the joy of shopping in physical stores, and shopping malls are cool again.
Text | Sabrina Escobar Miranda, Logan Moore
Edit | Guo Liqun
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Original barronschina articles, not reproduced without permission. For the November 14, 2021 report, "Shoppers Are Heading to Malls Again." These Stocks Are Good Bets.”。
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