2017 expected to be mixed bag for retailers, could be last year for Sears

While early estimates indicate a stronger than expected holiday season for the overall retail sector, there will be winners and losers, and that dynamic will likely play out in 2017.

Department store giant Macy’s recently reported a 2.1% decline in same-store sales during November and December and lowered its full-year earnings guidance. Macy’s said it will close 63 stores locations this spring, eliminating about 3,900 jobs. In addition Macy’s will cut another 6,000 jobs as it streamlines operations in order to focus on the growing e-commerce business.

E-commerce was a bright spot in Macy’s holiday season with double-digit growth. CEO Terry Lundgren is stepping down from that role in February, as previously announced in August. Long-time Macy’s executive Jeff Gennette will assume the CEO role ahead of the Feb. 21 earnings call.

Kohl’s also reported dismal same-store holiday sales down 2.1% in November and December. The department store said total holiday sales were off 2.7% describing the holiday season as “volatile.” Kohl’s CEO Kevin Mansell reported sound sales in men’s apparel, home and footwear, noting that accessories was the most challenging category this year. Like Lundgren, Mansell also gave lower fourth quarter earnings guidance in part because of sluggish sales along with lower gross margins due to a highly promotional climate. Kohl’s will report its fourth quarter earnings on Feb. 23.

Off-price retailers like Ross Stores and TJX are believed to have fared better through the holiday season. Retail analyst Walter Loeb said full-price retailers faced margin pressures from online deals and from off-price retailers offering popular brands at good values.

“When the books are closed on the 2016 Christmas season, I suspect total sales including internet revenues will be satisfactory. My forecast is still for a 3% gain in retail sales,” Loeb said. “I also think a sizable portion of the sales gains were achieved with mark downs, many of them unplanned and negatively impacting margins.”

Loeb said Wal-Mart’s consistent low price strategy has been good for its business and said the retail giant fared reasonably well during the holiday season. Target, who subscribes to a more promotional pricing system has more margin risk, he said.

Data marketing firm Slice Intelligence reports Best Buy, Home Depot and Target each did take some online market share through the first half of December. Studying online receipts, Slice Intelligence also expects Amazon and Wal-Mart each lost some share in that time period.
Looking beyond the holiday results, Loeb said a late Easter (April 16) gives retailers time to fill their shelves with spring and summer merchandise.

“A late Easter is good for the fashion industry promising many colorful selections that feel optimistic encouraging the consumer to spend. I am optimistic that 2017 will be a better year for retailers,” Loeb said.

Retail consultant Jan Kniffen said recently on CNBC that the retail sector is adapting to the new reality of online commerce with digital and mobile shopping capabilities. He said it’s hard for retailers to make a living online. He said doing online right takes investment and Wal-Mart is doing just that with its $3.3 billion purchase of Jet.com. He said Nordstrom’s will also shift more investment online, as will Macy’s.

He said the woes of Sears and Macy’s are related too other department stores. He expects 2017 could be the last year for Sears unless the retailer manages to halt losses. Kniffen said JC Penney would likely benefit should Sears become a name of the past.