Gap Inc offered deep discounts across its brands

Was the holiday season the washout for US retailers that many had feared? Yes, and no. Some retailers did just fine thanks while others… well, let’s look at Gap Inc.

The company’s shares fell after it said that even former portfolio star Old Navy couldn’t manage a decent season. For December, key comparable dropped 5%. The Gap chain’s comps fell 2%, Banana Republic dived 9% and Old Navy was down a worrying 7% (that’s after a 9% November drop).

OK, while total company sales dropped 4%, they still added up to $2.01bn – which is a figure I wouldn’t mind dropping into my own bank account any time soon! However, it’s margins that count and Gap (like M&S in the UK) may be huge, yet it just hasn’t been able to kickstart the sales growth it needs for so many years now.

With Old Navy previously having been powering ahead and meant to be the model on which to base the Gap chain’s longed-for turnaround, what’s to be done?

The strategy during the holiday season appeared to be based on radical price cuts. I took advantage of an “all jeans £20” one-day offer myself. But while I walked out of Gap with £500 of jeans for £160, I didn’t buy anything else at full price. I assume a similar deal was on offer in US stores… and offers like that, if they don’t lead to full price sales too, will devastate margins and can kill off turnaround hopes if they’re repeated too often.

So who else did badly? Macy’s, as I reported yesterday wasn’t great and Urban Outfitters saw flat sales for November and December combined. UO’s retail sales fell 2% and although wholesale rose 40%, that was partially due to delayed shipments from Q3 carrying over into Q4. Any true bright spots for the firm? Direct-to-consumer (ie online) grew at all brands.

Now for the good news

Victoria’s Secret Christmas 2015

OK, some stores did well pre-Christmas and while a few weren’t exactly a shock, you might be surprised about one other.

Firstly, no surprise about L Brands. The owner of Victoria’s Secret and Bath & Body Works, posted an 8% jump in comps after its “best December ever.” In fact, Victoria’s Secret online sales rose 14%.

And Signet Jewelers comps rose 4.9% in a month when you’d expect jewellery chains to do well.

So who was the surprise holiday season winner? JC Penney’s comp sales in November and December rose 3.9% with CEO Marvin Ellison saying it was all about own brands and omnichannel.

This is actually more spectacular than it looks given Penney’s very public fall-from-grace a few years ago and its struggle back into the sunlight, plus the fact that the company wasn’t immune to the warm weather woes that hit its retail peers.

It was also spectacular given that Saks Fifth Avenue’s CEO Jerry Storch said what everyone else was thinking – announcing the $250m acquisition of Gilt Groupe yesterday, he said that “the two biggest growth areas in retailing today are online and off-price.”

JC Penney, balancing discounts with full-price sales has paid off

Penney’s Ellison is very aware of this fact too and his compelling offer of strong own brands at a good price, knowing when to discount and by how much, a focus on the supply chain and his understanding on just how important online is, have kept JC Penney relevant in a game-changing retail environment and left other turnaround kids trailing.

Just as Gap reminds me of the woes being endured by M&S in the UK, JC Penney reminds me these days of John Lewis. Penney’s Ellison said yesterday: “Our strengthened omnichannel capabilities enabled our supply chain network to process millions of jcp.com orders this season, supported by 250 stores across the country that helped fulfil online orders using in-store inventory. With this level of selection, we saw more online customers take advantage of our in-store pick up option available at over 1,000 JC Penney stores nationwide. We look forward to capitalising on this digital progress through 2016.”

With a few Americanisms replaced by British English, it could have come from the mouth of John Lewis’s Charlie Mayfield!