By Margaret Bogenrief
CHICAGO (MarketWatch) — The reviews are in, sort of. Black Friday was a success. Cyber Monday? Not just a day. Or a week. But an entire month. In short, the retail world (version 2012 ) is saved.
Not so fast.
Despite upbeat headlines, occasionally violent sales lines, and frequent expert predictions that all is right in the shopping world, this holiday season’s Black Monday/Cyber Monday sales hide the dark reality of the retail market generally and the even darker truth of specific retailers: Holiday season 2012 will provide no saving grace to an industry — and weak individual players — in trouble.
Regardless of the “everything’s solved!” headlines you’ve read and the “hallelujah, the slow selling season is over!” declarations you’ve heard, the retail industry is nowhere near recovered. Indeed, for some, this holiday season presents concrete financial proof something must change, should these companies wish to return to profitability in 2013.
Here are five predicted retail losers this holiday season:
Abercrombie & Fitch: Sex no longer sells. Or so it seems. Somehow, through a combination of a market that’s outgrown its messaging combined with uncompetitive pricing in a new fast-fashion marketplace, peddler of racy advertisements A&F (NYSE:ANF) has hit the profitability skids, a three-year trend that will continue this holiday season. As Bloomberg Businessweek noted, company executives blamed the fact that “the once-edgy retailer has lost a third of its market value in the past year as it grapples with falling sales in Europe and the U.S.” on the contraction of the global economy, there’s a simpler, more direct in-house reason for this decline: while the blend of sex and Ivy League worked financial wonders for the company from 1995-2008, the fast-fashion industry has blown past the lumbering, dated retailer, which now finds itself selling faded T-shirts for $30 in a market in which replica T-shirts price in at about $10. In short, the retail land-grab for teens raptured in youthful fashion rebellion channeled through provocative bags filled with overpriced merchandise is over. Look for the retailer to trail more significantly this holiday season and come out the other side in January more lost than ever. Abercrombie & Fitch did not respond to a request for comment. Read Bloomberg Businessweek story “At Abercrombie & Fitch, Sex No Longer Sells.”
Best Buy: No one who’s read the business press this year is surprised by this prediction, but it bears repeating: what we are watching here is the is the slow-motion retail trainwreck that is the demise of once-mighty tech retail giant Best Buy (NYSE:BBY) . In this case, a combination of the Amazoning of the consumer retail (particularly electronic) experience, a steady decline in shopping experience and quality, and a dependence on brick-and-mortar over a cohesively evolving Web strategy (as well as limited product advantage) has brought Best Buy to its retail knees. Look for the retailer — which took another beating a few weeks ago, with shares falling 13% after the company released disappointing third-quarter results — to drop even further, post-holiday season. Read more about “Best Buy’s sense of urgency.”
A Best Buy spokeswoman disagreed with this characterization and said the company’s first priority is to “improve and evolve the customer experience,” “addressing their needs in a superior and unique fashion.” The company was not able to provide specific numbers, but during the Thanksgiving period alone, she said the company had large crowds over Black Friday weekend, popular online promotions, a 10% increase in site traffic and had one of the top three most trafficked websites for the Thanksgiving holiday and Black Friday.
Ron Johnson, CEO of J.C. Penney.
J.C. Penney: Beating up Ron Johnson is more a hobby nowadays than a serious intellectual exercise (even for this author, who’s long since railed against the prematurely anointed “King-of-Retail”). This holiday season will truly prove, however, that Penney (NYSE:JCP) and its misguided turnaround has no legs, perhaps before even Pershing Square’s Bill Ackerman realizes it. Muddled messaging, a confused product mix (snake-print thongs and free haircuts for kids don’t mix) and a weak Web strategy has made this company — which had more than $17 billion in sales in its last fiscal year — that much more vulnerable this holiday season. Mired in bad press and worse customer reviews — I receive dozens of emails a week from disenchanted consumers — Penney sits as the vulnerable sitting duck, susceptible to competitive pressures and customer discontentment. Look for J.C. Penney’s stock price to sink even lower in the beginning weeks of 2013. The company did not respond to a request for comment.
Sears Holdings Corp.: What can be said of J.C. Penney can be repeated, in one form or another, about Sears (NASDAQ:SHLD) — and not just this holiday season, but all year. While Chairman Eddie Lampert most likely doesn’t savor unwinding of one of America’s most historic and beloved brands, the Chicago-based retailer finds itself at a loss for customers and revenues. With a third-quarter net loss of $498 million, sales for the retailer dropped 5.8% to $8.86 billion, continuing a streak of declines. With little competitive advantage in its traditional hard-goods space and a lackluster website not-yet-tailored to the 21st century shopping experience, Sears finds itself losing traditional consumers to regional retailers and, of course, Wal-Mart. Despite a last minute Cyber Monday push, Sears is near the end of its retail rope and will find itself with an even lower stock price, come Christmas Day. Sears did not respond to a request for comment.
Kohl’s Corp.: Now this final call is a bit of a wild card, but something to consider. While much has been made of Kohl’s (NYSE:KSS) perfect position to usurp Penney’s customers, the retailer has continued to struggle this year with inventory and profitability issues. Fashion missteps contributed to the inventory glut, sapping sales; and rising input prices mean that on goods sold, gross margins have further compressed. This holiday season Kohl’s must perform if it wants to find itself in retail investors’ good graces on Jan. 1. Kohl’s did not respond to a request for comment.
Finally, don’t believe the hype. Despite what experts, retail executives, and the business press tell you, this holiday season will not be the saving grace the retail industry is looking for. Sure, the winners will continue to win, but for the laggards it could be a tough season. Look for many to fall further behind and, barring significant changes in investment and strategy, find themselves fighting for profitability come 2013.
Margaret Bogenrief is a partner with ACM Partners , a boutique financial advisory firm in Chicago, providing due diligence, performance improvement, restructuring and turnaround services. She does not have a position in any of the stocks mentioned in this column.