US retail challenges will impact Canada
As financial reporting comes in over the next few weeks from US -based retailers, we will continue to learn of remediation in the form of layoffs and store closures. Impact on Canada will be twofold:
1. Senior management attention on Canada will be diverted, even as sales here in many cases are a lone bright spot. More significantly, layoffs at US HQ’s will slowdown or derail approvals of Canadian expansion efforts. This will buy time for domestic retail to work on business improvement and competitive positioning in advance of an upturn.
2. Store closures will impact Canadian malls and other retail nodes. Furthermore, a number of deals in the works for retail space will be postponsed or shelved altogether. This will impact adjacent retail but might also be a catalyst to a downward cycle in lease rates.
A sample of recent reports include:
- Terrible results for luxury retail. Tiffany's US operations were down a whopping 35% this November-December vs. 2007 (specialty jewelry chains in this period were down 16%). Coach comparative-store sales were down 13% in the 4th quarter ending December 27. It is now slowing expansion and will offer more moderately priced items. However, 6 of the 20 new North American stores will be in Canada (original plans were for 40 stores).
- Although Canadian sales were solid, the bankrupcy of Circuit City has triggered The Souce owner InterTAN to follow suit. Possible buyers include The Brick Income Fund, BestBuy, and a management group.
- Best Buy December sales declined 6.5%
- Eddie Bauer 4th quarter same-store sales declined 10.5%
- Sears US was down 13.8% same-store sales in December
- The Gap's North American comparable stores sales declined 14% in December
- Even the chains many felt could succeed in tough times underperformed: WalMart missed estimates at 1.2% growth while Costco declined 2% on same-store sales in the US in December. Both suggested low single digit growth in Canada.
- A bright spot? Aeropostale seems to be siphoning teen spending (remember, they live at home and frugal is not yet cool) from traditional trendy competitors like Abercrombie. Aeropostale was unbelievably up 12% in same-store sales in December, while Abercrombie continued its double digit declines of late. This cost the latter 50 HQ jobs and American Eagle, fairing no better, has fired their Chief Marketing Officer.
- Reuters reports: "In recent weeks, retailers including Saks Inc, Children's Place Retail Stores and Charming Shoppes Inc have announced job cuts. So have apparel and shoe makers such as Burberry Group Plc, Phillips-Van Heusen Corp, Kenneth Cole Productions Inc and Brown Shoe Company Inc." and today The Home Depot annouced job cuts of 7,000 people and closures of stores Stateside.
- eBay is down 6%.
I will cover Canadian sales next.
