Nov 27, 2013
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For US stores it is ugly out there - in more ways than one

Nov 27, 2013

NEW YORK, United States - The 2013 holiday shopping season may end up being remembered for its ugly sweaters and, for many retailers, even uglier discounts.

With growing online competition, no fashion must-haves and weak consumer confidence, most U.S. retailers will have to offer both big discounts and stellar service to get consumers to spend freely, according to retail analysts who joined Reuters reporters on visits to stores in New York, New Jersey, California and Illinois ahead of the holiday season.

Shoppers in line for Macy's on Black Friday | Source: AFP

"People are being a lot more selective in where they spend their money," said Wedbush analyst Gabriella Santaniello while touring the Westfield Topanga mall in Canoga Park, California.

To be sure, with online sales increasing, store visits provide only part of the picture. Still, a trip to the mall with a trained expert provides vital clues ahead of the holiday season, which usually accounts for almost half of retailers' profits.

The battle for the consumer dollar is particularly intense in a year when taxes have risen, unemployment has remained stubbornly high, and confidence has taken a hit from the recent government shutdown and uncertainty over the introduction of President Barack Obama's healthcare reforms.

Offsetting those negatives has been the wealth impact of a rise in home prices and a rallying stock market, though that is more likely to help the luxury end of retailing.

Most industry estimates see sales growing modestly overall, with online retailers taking a bigger slice of the pie, and electronics stealing share from apparel.


In a sign of intense competition, there has already been unprecedented price-cutting from the giant discount chain Wal-Mart Stores Inc, earlier-than-usual deals from online goliath Amazon.com Inc, and price-match promises from Best Buy Co Inc, Target Corp and others, even before the season's unofficial kickoff on Thanksgiving Day.

Wedbush's Santaniello is betting on Urban Outfitters Inc, American Eagle Outfitters Inc, and other purveyors of trendy sweaters featuring cutesy animals, phrases such as "totes amaze" (slang for totally amazing) in curly cursive, and "fair isle" patterns.

"This is going to be a Christmas of ugly sweaters. That's the hip thing now, bad sweaters are so cool," among 20- and 30-year olds, she said, eyeing an Urban Outfitters tan sweater with a pair of foxes knitted into the pattern of the garment, a technique known as intarsia.

New must-have gadgets such as Sony Corp's PlayStation 4 and Microsoft Corp's Xbox One gaming consoles and Apple Inc's latest iPhones and iPads could take a bite out of other holiday gift purchases and hurt some apparel chains, according to analysts.

"There's a limited wallet, and there's going to be a lot of competition from outside the apparel space, which means teens are going to be spending much less money on clothes," said Bridget Weishaar, a retail analyst with Morningstar.

A visit to a Best Buy store in Chatham, New Jersey, gave analyst Scot Ciccarelli a reason to recommend the retailer's stock to investors this holiday.

At least four sales associates offered to help Ciccarelli within 20 minutes of entering the store, a huge improvement from last year, the analyst with RBC Capital Markets said.

"The simple fact that people are asking you, 'Can I help?' and are nice and friendly,' is the big difference," Ciccarelli said, showering praise on Best Buy's new management team for investing more in training its sales associates. Best Buy's share price has more than tripled since last holiday season as results have improved.

Wendy Liebmann, CEO of WSL Strategic Retail, expects teen apparel chains to offer bigger discounts closer to Christmas because fashions are "banal" this year and interchangeable, and teens have been trained to wait for the best deals.


Craig Johnson, president of consulting firm Customer Growth Partners, praised Nordstrom's selection of jeans and shoes, and said he expects the department store chain to have an "okay" season, though not a blockbuster one because even wealthy shoppers are holding back and looking for sales.

During a visit to its store in Westchester Mall, in White Plains, New York, he said he was impressed by its new in-store signs that can be seen from afar and clearly tell shoppers where they can find "power" brands like "Theory," "Vince" and "Burberry Brit," which are especially popular with upscale shoppers.

Macy's hasn't raised its annual sales forecast, but Liebmann expects it to have a solid holiday season because of a good selection of products and because it is well ahead of some rivals in integrating stores and e-commerce, which includes filling online orders from stores.

Liebmann found the level of discounting at Macy's flagship Manhattan store muted, which he said would give it room later in the season to cut prices without going down to alarming levels.

"This is just the beginning, but they're not giving it away yet," said Liebmann, pointing to deals such as 25 percent off on Calvin Klein men's shirts.

At troubled department store chain J.C. Penney Co Inc, analysts had mixed views about overstuffed racks of clothing, with some seeing it as a sign of weakness and others that the company was trying to prove to shoppers that it had overcome recent troubles - which included under-stocking of some store brands.

"What one may misconstrue as clutter is merely a strategic effort to meet high customer demand," said Penney spokeswoman Daphne Avila.

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