A Glimpse at Fiscal 2010
Fiscal 2010 for retailers was a year of continuous process of
streamlining and assimilating internal processes. With this
priority in mind, retailers concentrated more on aligning
inventories, improving efficiencies and spending on technology,
which led them to enter fiscal 2011 with a more optimistic
outlook.
The Challenges and Opportunities of 2011
The retail industry is well positioned to face another year of
challenges and utilize to the fullest the opportunities made
available by the economic recovery, even as the quality and pace of
the recovery has left much to be desired. Despite continued
problems, consumers are slowly gaining confidence in the market and
increasing their spending power, which is helping retail sales show
signs of recovery.
According to projections by the National Retail Federation (NRF),
retail industry sales are expected to grow 4% from the 2010 levels,
with strength in the holiday season and some improvement overall
driving most of the gains. According to the NRF, retailers ended
fiscal 2010 on a strong note due to the good holiday season that
set them up for improved growth in the recovering economy. However,
inflationary pressures from high commodity prices despite some
recent easing and continued high unemployment remain headwinds for
the economic recovery.
Having stabilized their financial positions, retailers now are well
positioned to bring newer concepts to the store. We expect
retailers to remain focused on having better supply chain and
leaner inventory levels. Those who execute will stand out in the
end.
Retail is basically a volume game. Going forward, with the
competition intensifying and the costs scaling up, the players who
are able to cater to the needs of consumers grow volumes by
ensuring foot traffic, cut costs and weather competition will have
the final advantage.
Supply Chain Management Remains a Challenge
In fiscal 2010, when retailers were still struggling to shake off
the effects of the worst recession in recent history, supply chain
management was proving to be quite problematic. However, many
retailers took advantage of the best holiday season and turned such
challenges into opportunities. In fiscal 2011, capacity and pricing
issues are still expected to impact retailers’ operations.
Multi-Channel Retailing – An Opportunity
Every challenge comes with an opportunity and one such opportunity
is Multi-channel retailing. This refers to the retailer’s ability
to sell directly to the customer through multiple distributions
channels, such ‘brick & mortar’ stores, mail order catalogs and
online. Multi-channel retailing can provide a platform of growth
for many retailers. Retailers are adjusting their supply chain in
order to meet the needs of the Multi-channel retailing.
Retailers Adapt to Consumer Preferences
Given the still uncertain macro environment, consumers now prefer
price over fit and quality as the major determinant for their
shopping decision. In surveys across all income levels, respondents
rank price as the most important reason for store choices by a
significant magnitude ahead of other criteria.
Therefore, this reiterates the importance for retailers to offer
trend-right and well-designed assortments without compromising
quality in order to improve merchandise margins, in addition to
compelling price points.
July Comparables
According to the International Council of Shopping Centers (ICSC),
for the month of July 2011 same-store sales increased 2.9% over
last year, with growth of 3% expected for the month of August.
Some retail chains like
Nordstrom Inc. (JWN),
Macy's, Inc. (M),
Ross Stores
Inc. (ROST),
Limited Brands Inc. (LTD),
HOT Topic Inc. (HOTT) and many others reported
robust comparables for the month of July 2011.
Improving labor markets, better economic conditions, and the fall
in payroll tax helped to mitigate the effect of high fuel and food
prices. The key reasons for their strong performances appear to be
their continuous efforts to offer innovative products and value
pricing, rapidly respond to the buying habits of the consumers and
strengthen loyalties despite price-motivated fickleness.
OPPORTUNITIES
Many retail chains posted strong same-store sales growth in July as
hot weather deep discounts lured consumers to visit shopping
malls.
Macy's, Inc. (M), reported same-store sales growth
of 5.0%. Total sales were up 5.7% to $1.6 billion. An increase in
online sales added to the surge in same-store sales growth.
Nordstrom Inc.’s (JWN) same-store sales for July
2011 increased 6.6% compared with the same month last year. Total
retail sales were $993 million, up 11.5% from $890 million in July
2011.
Limited Brands Inc. (LTD), a specialty retailer of
women’s intimate and other apparel, beauty and personal care
products recently posted a 6% increase in comparable-store sales
for July 2011. Total sales for the period came in at $660.4 million
for the period compared to $619.7 million last year.
WEAKNESSES
Generally, retail companies have been under pressure in the recent
downturn due to high inventory, lack of consumer spending due to
weak disposable incomes and rising commodity prices. These
companies have still not been able to offset these difficulties and
are reporting flat or declining sales trends.
Kohl's Corp. (KSS), value-oriented specialty
department store offering moderately priced, exclusive and national
brand apparel, shoes, accessories, beauty and home products in an
exciting shopping environment, reported that company’s
comparable-store sales for July 2011 inched down 4.6% with total
sales plummeting 2.9% to $1,122.0 million.
Gap Inc. (GPS) a premier international specialty
retailer offering a diverse range of clothing, accessories, and
personal care products, reported a 5% decrease in same-store sales
for the four-week period ended July 30, 2011. The company reported
flat net sales growth for the period.
GAP INC (GPS): Free Stock Analysis Report
HOT TOPIC INC (HOTT): Free Stock Analysis Report
NORDSTROM INC (JWN): Free Stock Analysis Report
KOHLS CORP (KSS): Free Stock Analysis Report
LIMITED BRANDS (LTD): Free Stock Analysis Report
MACYS INC (M): Free Stock Analysis Report
ROSS STORES (ROST): Free Stock Analysis Report
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