ABC of retail’s perfect storm: Abercrombie, Burlington and (Italian) Consumers

Perfect Storm/Michiganmetrology.com

Perfect Storm/Michiganmetrology.com

What on earth is going on with consumers and retail at the moment? In the US and UK, and many parts of Europe, we’re a long way from the recession, unemployment is lower and salaries are rising. It may not be some golden age in which we’re all skipping around feeling rich. But in circumstances like these, retail usually feels the benefits.

But it isn’t. All we seem to be getting is report after report of tanking sales and consumer apathy. Even online sales growth seems to be proving anaemic.

The reasons, we’re told, are a) the Presidential election causing uncertainty, b) the Brexit vote causing uncertainty and c) the weather (too hot, too cold, too wet, too dry).

Three news reports late yesterday highlighted the problems at the moment. First, Abercrombie & Fitch reported Q1 results that were down as fewer people were shopping in its stores.

Abercrombie & Fitch SS16

Abercrombie & Fitch SS16

The chain that used to have shoppers banging on its doors said that in the three months to April 30, its lost $39.6m (that’s on top of a $63.2m loss this time last year) with sales down 3% to $685.5m.

OK, sales of nearly $700m aren’t exactly chicken feed, but a 3% decline isn’t good and sales on a comparable basis (ie excluding new space that’s been added in the last year) dropped a worse 8% at the company’s Abercrombie stores.

Executive chairman Arthur Martinez blamed “traffic headwinds, particularly in international markets and in our US flagship and tourist stores.” He said the rest of this year would be challenging, even though he did also say he expects better results later in the year. But will that expectation turn into reality?

The company sees its pricing strategy as key. Martinez said Abercrombie has been selling more goods at full price as it reins-in markdowns and is set to continue this approach.

He insisted in an interview that on-going challenging conditions won’t force more price cuts and that avoiding short-term gains from promotions is a “price that needs to be paid”.

Amazon, nerves and prices

Which brings us to one of the major factors retailers have to face today. Forget the weather and consumer nervousness, it’s Amazon. Martinez said in the interview he hasn’t ruled out possibly selling on Amazon, something Gap said recently too. The fact is that Amazon’s growth in fashion has had a major impact on sales for many former high-flying chains. Amazon is set to rule the world as far as market share in fashion is concerned and that’s really hurting retailers at the moment.

Combine that with the other factors that are impacting retail and we have a tough environment that’s unprecedented.

Consumer apathy

Another report yesterday was from Italy where Confesercenti, an Italian retailers’ association, said retail sales growth is just too slow. National statistics agency Istat had announced the volume of retail sales in March this year rose only 0.8% compared to February and just 1.9% from March last year. Confesercenti said that if this pace continues it will take several years before Italy even gets back to its consumers buying the same amount of ‘stuff’ it bought in 2009.

While cars and dining out seemed to do well, it appears that Italian consumers just don’t want to buy non-essentials (which includes fashion) and are really nervous about their future prospects. They’re also very price-conscious.

That’s a trend that’s being repeated in very many markets. Back with the US, the third report that interested me was from Burlington Stores, which said its profits rose 46% in Q1.

Great news right? Well, yes. But it also adds weight to what I’ve been saying here. Burlington is an off-price retailer with prices up to 65% off. So if a company that slashes prices can power ahead while a former high-flyer that’s committed to maintaining its higher pricing sees its sales falling, and consumers are feeling generally nervous, it really doesn’t bode well for the rest of the year.

All we need now is a chilly summer followed by a warm winter and a pre-Christmas shopping season dominated by Black Friday-style discounts and 2016 really would turn into a perfect storm.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s