2011 Retail Roundup
As the holiday season comes to a close, retailers are adding up sales and assessing whether the most important time of the year was a success or failure. Early indications suggest the numbers will be good on the top line but less so on the bottom. By the end of February, most retailers will have reported year-end revenues and we'll have the complete picture at that time. However, with Black Friday and Cyber Monday in the books for another year, we have a pretty good indication how some of America's major retailers fared in 2011. Our retailers' roundup is a quick look at the past year in retailing and what lies ahead in 2012.
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The post-Thanksgiving sport that is Black Friday was even more interesting this year because of a petition organized by a Target (NYSE:TGT) employee, Anthony Hardwick, objecting to the midnight openings by most major retailers including Hardwick's. Over 200,000 signatures were gathered online and another 190,000 hard-copies were delivered to Target's Minneapolis headquarters. It's hard to know whether this extra press induced more people to turn out for Black Friday sales, but this year's earlier store openings translated into record business. According to ShopperTrak, sales were up 6.6% to $11.4 billion from $10.7 billion last year. Due to Black Friday deals prior to Thanksgiving, November revenues were already strong prior to the fifth biggest selling day on the retail calendar, and it didn't stop there. (For related reading, see Who Won The Black Friday Sales Race?)
It was a record year for the Monday following Black Friday as revenues hit $1.25 billion, 22% higher year over year. The average shopper spent $124.82 online, a 9% increase over 2010. Most importantly, there was an 11% increase in the number of shoppers making a purchase online. It's clear e-commerce is the single most important driver of growth in retail today. Investors should carefully consider how well their favorite retailers are adapting to online retailing. In the future, only those deriving more than 10% of their sales from online sources will be truly profitable.
There are several ways to determine the winners (and losers) in retail for 2011. Same-store sales growth is always a favorite of analysts. However, fewer retailers release those figures these days, so it's not as vital as it once was. Furthermore, just because a retailer is growing comps does not mean they are making more money. This past year will likely be a good demonstration of this fact as retailers cut gross margins in an effort to increase sales. Instead, I'll base my winners on productivity; those retailers growing their sales per store and sales per square foot year over year over the latest four quarters.
In the department store category, the big winner is Macy's (NYSE:M), increasing sales per square-foot over the latest four quarters by 4.6% to $154 and sales per store by 4.3%. Traditional competitors Nordstrom's (NYSE:JWN) and Kohl's (NYSE:KSS) also did well in 2011. In the off-price apparel category, both TJX (NYSE:TJX) and Ross Stores (Nasdaq:ROST) did well this year. Of the two, Ross Stores did marginally better with a 3.1% increase in sales per store, and a 4.2% increase in sales per square feet compared to a 2.5% increase in both metrics for TJX. Finally, on the luxury side, both Tiffany & Co. (NYSE:TIF) and Coach (NYSE:COH) have plenty to celebrate this holiday season as their productivity was off the charts, with Tiffany increasing sales per store 13.5% and sales per square foot 14.6%. With the exception of Apple (Nasdaq:AAPL), Tiffany and Coach are the most productive retailers in America.
Unfortunately, most of the names on this list have been bad for a while. Sears Holdings (Nasdaq:SHLD) has been dreadful ever since Edward Lampert merged Kmart with Sears in March 2005. The story's been no different in 2011 as the failing retailer's sales continued to slide. In terms of productivity, its sales per store declined 8.9% and sales per square foot were down 5% year over year. It's a mess. Stuck in neutral is J.C. Penney (NYSE:JCP), who've at least tried to address its problems by hiring Ron Johnson as CEO, the former head of retail at Apple. Johnson's brought in some capable people to turn that ship around so its situation's not nearly as dire. Lastly, consumer electronics stores all had a bad year whether we're talking Best Buy (NYSE:BBY), Radio Shack (NYSE:RSH), HHGregg (NYSE:HGG) or Conn's (Nasdaq:CONN). All of them have coal in their stockings this holiday season.
The Bottom Line
Overall, 2011 was a reasonable year for most retailers except those in the luxury space, who had a great year. As we move into 2012, the big question continues to be the economy. If things don't get better soon, only the most productive retailers will profit as we move towards an election in November. (For related reading, see The 4 R's Of Investing In Retail.)
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At the time of writing, Will Ashworth did not own shares in any of the companies mentioned in this article.