The holiday shopping season is a nail biter for all retailers: That's because the fourth quarter can generate a whopping 40% of a merchant’s annual sales.
But the make-or-break period is also when a retailer’s long-term fortunes – or misfortunes – come into sharp relief, shining a spotlight on which chains stand to gain market share, like up-and-comer Uniqlo; cement a bonafide comeback, such as the Gap; and perhaps reverse a losing streak -- think Sears, Best Buy and J.C. Penney – or fail to.
Indeed, this holiday season, all eyes are on J.C. Penney, which has suffered massive sales declines (down 26.6 percent in the most-recent quarter), shopper defections and the wrath of both pundits and consumers due to the elimination this year of most of Penney’s 590 annual sales and coupons in favor of 40% lower prices everyday.
It's all part of the radical strategy concocted by CEO Ron Johnson, who joined Penney last year from Apple, where he led that company’s highly successful retail business.
Johnson has also been transforming a chain that for 110 years has served the tastes of Middle America, into a specialty department store with 100 mini shops from brands like Martha Stewart and Levi’s, but also edgier fare such as Canadian fast-fashion retailer Joe Fresh.
But it's the push to wean shoppers off what Johnson characterizes as their unhealthy addiction to sales and coupons that has been the biggest flop so far.
In the comment section of countless news stories on Penney's makeover, shoppers have unleashed their fury at the CEO for taking away their beloved bargains while seemingly turning his nose up at the retailer’s core, older and more traditional, shopping base.
“Clearly this CEO is delusional,” said one Forbes reader. “The last time I went into J.C. Penney there wasn't a single item on sale,” he said on Forbes.com, commenting on Abram Brown’s piece this month on the retailer’s $203 million third-quarter loss.
“After using the $10 coupon the CEO sent I promptly left, and haven’t been back since. The CEO’s ‘vision for the company’ and recognition of the current economy seem to be at irreconcilable odds with one another. Sell short.”
It’s hard to remember now, but back in June 2011, industry pundits applauded the announcement that Johnson would succeed Myron Ullman as Penney's CEO, saying his Apple pedigree and earlier stint as vice president of merchandising at chic discounter Target would bring a much needed freshness to the old-line department store.
But analysts started to change their tune when Johnson’s radical moves prompted Penney's sales to sink quarter after quarter as the chain alienated shoppers.
“Trends at J.C. Penney are obviously getting worse, not better, and we are becoming more and more convinced that sales in 2013 will also decline, which could lead to a going-concern problem next year,” said Deutsch Bank analyst Charles Grom this month.
Still, Johnson is confident that Penney can pull off a good fourth-quarter.
On November 12, the company rolled out its “Merry Christmas, America” holiday promotion, what Johnson called the only true sale event Penny has run all year. But will disgruntled shoppers give the store another chance?
Down and Out?
Meanwhile, J.C. Penney rival Sears has logged five consecutive years of sales declines and has struggled ever since Eddie Lampert, the hedge fund guru who leads Sears Holdings and is its majority shareholder, orchestrated the merger of Sears and Kmart in 2005.
Lampert has been shedding Sears’ assets for cash – it’s divesting 1,000 Hometown appliance and outlet hardware stores after shedding its Orchard Supply Hardware chain last year – instead of investing in stores.
Full List: The 10 Retailers With The Most On The Line
The ongoing neglect has resulted in a chain of 867 outdated stores -- many of which are located in waning malls – stocked with merchandise that bears little distinction from Sears’ middle-of-the-road, department-store brethren Kohl’s and J.C. Penney.
Now this holiday season, Sears is betting on an exclusive line of flashy fashions from the Kardashian sisters, as well as a free layaway program and savings perks from its enhanced Shop Your Way loyalty program to boost business.
The idea is to revive sales from its core shopping base, which has been hit hard by the down economy, Sears' executives told me last month during a holiday press preview.
Still, “We forecast fiscal 2012 through 2013 organic sales to decline, owing to negative comparable stores sales and store closings,” Paul Swinand, a Morningstar analyst, said in a research note this month.
He did cite a few glimmers of hope: Sears’ apparel business posted positive sales recently, in part due to the Kardashian Kollection from the reality show sisters, while sales from its appliance business, its greatest asset with well-known brands like Kenmore, “grew for the first time since the recession,” Swinand said, attributing the gains to new chief merchant Ron Boire.
Nonetheless, “Sears turnaround continues to be a battle,” he said.
By contrast, the Gap is getting its mojo back after a dark period.
The iconic clothing chain that put casual dressing on the map has been in a funk for a good part of the decade, beset by uninspiring merchandise akin to adult Garanimals – dull, solid-color tops and bottoms that left shoppers cold -- just as fast-fashion retailers like H&M, Zara and Forever 21 took flight, winning over consumers with low-priced, runway inspired looks.
Full List: The 10 Retailers With The Most On The Line This Holiday Season
After some serious management upheaval, the Gap began to turn a corner this year, finally churning out fashion hits like brightly colored jeans at its flagship Gap chain, and Mad Men-inspired clothing at upscale spin-off Banana Republic.
It also got hip with the times, partnering with crowd sourcing pioneer Threadless.com to sell T-shirts from the community of artists and everyday shoppers, who vote on which designs go into production.
The moves appear to be paying off.
For the most recent quarter ended Oct. 27, comp-store sales at all three brands – Gap, Banana Republic and Old Navy – were up.
But the jury is still out on how the retailer will fare for the holiday-selling season. Although the Gap's November comp-store sales -- which include Black Friday weekend -- rose 3 percent, versus a 5 percent drop last year, results fell short of Wall Street's expectations.
Now the Gap is betting on its “Love Comes In Every Shade” holiday advertising and merchandising campaign to drive fourth-quarter sales.
The ad push promotes its holiday line -- which includes legging jeans in “optimistic washes” like lemon yellow and neon violet and new “Eversoft sweaters” -- with images of stars like Michael J. Fox and wife Tracy Pollan and singer Nas and his father Olu Dara, celebrating “true love,” “fatherly love,” and “even puppy love,” according to a press release.
New Kid on The Block
When the Gap was still down and out, some industry pundits pointed to Japan's largest retailer Uniqlo, with its minimalist, affordable clothing showcased in sleek, modernist stores, as the upstart that could take its place.
Uniqlo’s CEO would sure like that.
The retailer, which kicked off its expansion into U.S. malls this fall, is aiming to reach $10 billion in U.S. sales by 2020, Shin Odake, CEO of Uniqlo USA, said during a press event in September, with a plan to open 20 to 30 stores annually.
Odake told me last year that Uniqlo which operates 1,100 stores in 12 countries, wants to change how America dresses by selling fashionable-yet-understated clothing with performance features like Heattech, its exclusive heat-retaining and moisture-resistant technology, that a Twentysomething or Sixtysomething could wear.
Holiday 2012 will be the first test of how Uniqlo's expansion beyond U.S. cities into malls fares. The retailer's initial attempt at mall expansion in 2005 flopped.
Could Uniqlo, which is sort of like the Apple of fashion, be the next big thing?
Stay tuned.
Full List: The 10 Retailers With The Most On The Line
