That was the first sentence of our article in the Keypoints July issue, entitled Is Stability in the Air? In the article we cited that several major retailers reported modest comp store gains, or at least some flattening in the sales trend, for the first time in a long time. In recent years we’ve became accustomed to comp store sales declines as internet sales accelerated, so seeing some flattening in those trends was welcome sign.
For several reasons I am even more encouraged that we may be approaching a bottom. In just this past week, reports from GAP, Abercrombie & Fitch, and Foot Locker all indicated comp store improvement. What may be even more promising is the fact that all are mall-based retailers.
The report on GAP showed a 3% comp store increase in Q3 compared to a 1% decline a year ago. Although value-priced Old Navy had the strongest performance, up the same 4% as a year ago, the namesake division still enjoyed a 1% sales increase against a 4% comp store sales decline in Q3 2016. And although Banana Republic dropped 1% in comp store sales, it was a vast improvement from the 6% decline last year. GAP increased its full year forecast for comp stores as a result.
Abercrombie & Fitch, which has struggled mightily in recent years for a variety of reasons, experienced a comp store sales gain in Q3 of 4%, powered by an 8% gain in Hollister comp sales (although comp sales at the namesake division dropped 2%). At the same time, direct-to-consumer sales, which include online, showed some flattening, growing to approximately 24% of total company net sales, compared to approximately 23% last year.
Even JCPenney showed comp store gains in Q3, increasing 1.7%, albeit at the expense of gross margin. Right now, however, retailers need to focus on maintaining market share, even if profit suffers a bit.
While brick and mortar news may be starting to turn around, another promising trend may be forming. For years now we’ve seen double-digit year-over-year gains in nonstore retail sales become the norm. In 2017, however, that trend is beginning to slow down. In the past three months, sales outside of stores have been below 10%. August sales were only 8.4% ahead of last year. While September inched up to a 9.2% year-over-year gain, significant cooling occurred in October with only a 6.8% gain. Coupled with recent improvement at the brick and mortar level, we may be experiencing some bottoming out in the swing toward internet retail sales.
However, landlords should not consider this as a signal that we are out of the woods just yet, and thus far it seems that they aren’t. In fact, a recent survey among both retail landlords and retailers conducted by FTI Consulting found landlords far more concerned than retailers about the shift to online shopping and changing consumer preferences: 80% of landlords, compared to 57% of retailers, who are able to react much more quickly to the digital age than landlords can. In fact, retailers expect e-commerce to account for 23.6% of their sales in three years, up from 16.1% today, as they shift more attention toward omnichannel retailing.
While it is far too early to call it a bottom, the tide is definitely starting to turn.
Bob Sheehan, VP of Research
BSheehan@KeyPoint Partners.com
We’re Looking At Malls
In our October issue, alert readers will have noticed a new Industry News section: Mall News (Page 3). You’ll also note that our Commentary last month was mall-related. That’s because we’re sharpening our focus on what’s happening at the nation’s malls, with new publications, new data tools, and new insights. There’s much more to come soon.
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