the Insiders


January 12, 2009 3:01 PM


Comps, Relatively Speaking

A year ago, in a page-one story headlined "Bad and Getting Worse: Retailer Worries Spiral as Comp Sales Stumble," WWD reported on a very disappointing December 2007 during which 27 of the 41 stores tracked suffered same-store sales declines....

A year ago, in a page-one story headlined "Bad and Getting Worse: Retailer Worries Spiral as Comp Sales Stumble," WWD reported on a very disappointing December 2007 during which 27 of the 41 stores tracked suffered same-store sales declines. Mass merchants, on average, moved up 1.1 percent, but specialty stores tracked down 3 percent and, even with increases at Neiman Marcus and Nordstrom, department stores lost 5.4 percent. Sales weren't quite as bad as expected, but the story warned of "a recession -- or 'recession-like' conditions -- as consumer spending slows to a crawl."

The story made no mention of fuel or gasoline, but it did take note, ominously enough, of a possible acquisition of "beleaguered mortgage firm Countrywide Financial Corp." Moody's Investors Service analyst John Lonski warned of a tough 2008 "until the labor market firms" and of the smallest expansion in consumer spending -- 2 percent -- since 1991.

Ah, the good old days! With the recent difficult digestion of December 2008 comps, there have been 12 comp reports since the December 2007 WWD story and the news landing in our Web browsers on either the first or second Thursday of every month -- with an exception for Yom Kippur -- only got worse. At the start of the year, we worried about gas prices and our friends' jobs; by the end, we looked at gas prices as the one silver lining in a sky filled with dark clouds and feared for our own jobs.

Consolidation was still the archenemy of many vendors looking for convenient scapegoats a year ago. Subprime mortgages and credit default swaps were Wall Street's problem, and most of us trusted Wall Street...and the Treasury Department and the Fed...to deal with them, efficiently and expeditiously. Merrill Lynch?  AIG? Wachovia? Rock solid. No more Enrons!

To paraphrase an old dorm room joke, at the start of the year we laughed at the dog, but by the end of the year the dog was us.

But to be fair, 2008 had the look of a loser from the start. According to WWD's numbers, department store comps began 2008 down 3.2 percent in January and managed a gain -- 1.1 percent -- in only one of the next 11 months. Specialty stores were down during the first three months of the calendar year and up only 3.9, 0.3 and 0.8 percent, respectively, in the following three months before heading south for the duration. Wal-Mart was responsible for any gains in the mass channel for all but one of the first eight months of the year.

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But the economy would never be the same after September, when Wall Street and the credit markets and the credibility of public and private financial institutions all came crashing down. Spending came to a standstill after 9/11, but it quickly caught its breath and moved forward. One doesn't get the same kind of feeling this time. Even those with job security, affordable mortgages and savings have been scared into a spending stupor, and the purchasing pullback reached a new level last month when even Wal-Mart wasn't able to meet its expectations and those of analysts.

Macy's Inc. had stopped reporting comps for a period, but chief executive Terry Lundgren dragged the company back into the monthly ritual in October to demonstrate how well it stacked up against the competition after the firm's stock had gone into a swoon.
Lundgren had a point. Macy's comps were off 4 percent in December, but only one department store company, Kohl's, did better, and that was with a 1.4 percent drop.

Department stores scored something of a victory last month in that the average decline fell short of double digits with a 9.7 percent drop, better than in October or November. And that was despite a 27.5 percent decline at Neiman Marcus and a 19.8 percent drop at Saks Fifth Avenue. (By contrast, Saks was up 23.9 percent in April.) The affluent don't feel like spending these days, and those who sought to dress like the affluent either aren't in the mood or simply don't have the means to keep up with the Joneses now.

At some point -- maybe this year, maybe next -- the combination of very weak comparisons and even a slight uptick in confidence will start to move comps off the mat, if not exactly into the stratosphere. Until then, those of us who watch these numbers with an almost obsessive interest will marvel when declines come in with single digits, earnings guidance isn't routinely revised downward and the news of the month doesn't include cuts in payrolls and store counts.

Certainly, our expectations ain't what they used to be. As operations consultant Antony Karabus put it a few months ago, "Minus 5 percent is the old plus 5 percent."
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