Winter’s Bone – Solid January Sales Despite Stormy Weather

January 2011 retail sales results, released Thursday, surpassed most predictions.   On a sales weighted basis, comparable sales at major retailers increased by 4%, which was comparable to their results reported for the holiday season.  While consumer confidence has reached its highest level in 8 months, most experts expected that the East Coast storms would reduce store traffic, leading to a net 2 to 3% sales increase.

What are the underlying stories?

Uneven geographic results. No doubt that storms impacted sales results in the Northeast and the South.  Retailers who reported geographic resultsuniformly reported strength in the West and Midwest and weakness in the Northeast and South due to weather.  That geographic disparity benefited retailers whose store count is more skewed toward the West and Midwest (Costco, Nordstrom, etc.) and challenged chains with an East Coast concentration (BJ’s).  For February, look for chains with high store concentrations in the Midwest to underperform due to storm conditions.

Jewelry, apparel and accessories; sales continue to skew toward luxury. Jewelry, designer apparel and accessories were strong categories for luxury retailers.  Saks and Neiman Marcus, for instance, reported strong sales, and recent sales reports by Coach and Tiffany also indicate strength in these categories.  However, Target reported weakness in these categories.  This is further evidence of the “Tale of Two Consumers” as aspirational shoppers spend on luxury brands and perceived quality, while stretched consumers continue to forego discretionary purchases.

Consumer electronics a challenging environment. Both Costco and Target reported disappointing sales results in consumer electronics.  My speculation is that this is a continuation of two trends: 1) consumers’ use of mobile devices and price comparison apps to create a very price competitive environment; and 2) consumers’ continuing preference for certain products (Apple products and Android phones) at the expense of other brands.

Tailwinds from gift card redemptions. While January is generally the slowest month for retail sales, it also benefits from redemptions of holiday gift cards.   Holiday gift card purchases increased significantly, and sales from those redemptions contributed strong momentum to January sales results.

Challenge for spring season merchandise.  January is when many retailers introduce spring season floor sets.  However, storms in the East and South and the continuing harsh storms in the Midwest, mean that if those shoppers shop at all, they will be less excited about warmer weather spring merchandise.  This leads to a slow start to the spring season.  While there is plenty of time left, this raises the likelihood of reduced spring merchandise reorder quantities through the supply chain, and also the need to rebalance geographic merchandising.  Stay tuned to see how this plays out.

Storms benefit online shopping.  Most retailers didn’t break out their online sales results, however Macy’s indicated that online sales increased by 27%.  This exceeds the historical industry average increases of 10 to 15%.  I would expect retailers with significant online presences, such as Amazon and eBay to be positively rather than negatively impacted by the winter storms.

With a stormy start to February, are we in for a continuation of these results?

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