Posted by: Bill Kirk, CEO
No surprises here as there were several factors that suggested November was in “no-mans-land” as WTI warned clients like JP Morgan, Diamond Back Capital and Jefferies months ago. November retail industry same-store sales were well below the Wall Street expectations of +2% to +7%, coming in at -0.3% according to data from the International Council of Shopping Centers. The bullish forecasts were based on the very easy comp last year when retail SSS were the worst ever for any month at -7.7% but December 2007-2008 is a good reminder that you can have back-to-back negative retail sales!
So why so bad after a supposedly strong Black Friday? Blame the weather and cannibalized sales into October and other simple trends. First, the industry sales history tells us a lot. October usually outshines November SSS about 87% of the time over the past 30 years. When October is stronger than expected (it was this year) it leads to a weaker than expected November 73% of cases. Right off that bat we knew that November would have issues since October was so much stronger due to great weather – 3rd coldest in history, wettest in 114 years and snowiest in 40 years – drove strong demand for must have Fall items. This canabalized Fall and Winter seasonal merchandise out of November. So what’s left for retailers to sell us since we already bought coats, sweaters, snow shovels, mouse traps, and firelogs in October? Holiday gift categories like electronics (actually did well in November) – that’s about it. Only problem there is consumers are buying holiday gift categories about 2 weeks before the holidays. Seasonal category sales were further hurt by exceptionally warm November weather – warmest in 8 years! The chart below summarizes the regional trends across the U.S. (CLICK ON IMAGE FOR FULL SIZE)
While the U.S. was mild, it was actually quite frigid in Russia and China with the coldest conditions in decades so seasonal sales were better in that region (see map below):
So what’s in store for December? While the National Retail Federation is forecasting gloom and doom (-1%) the news is likely to be better. Why? Better weather! The past two year’s we’ve had record snow and cold right around the holiday which curtails store traffic, consolidated/fewer trips to the mall and a surge in on-line sales. With a much warmer, drier and much less snowy 2-weeks before Christmas store traffic will remain high benefiting gift categories at the expense of cold seasonal merchandise. The two very weak Decembers -0.7% in 2007 and -4.7% in 2008 make for very easy comparisons this year – easier than November. Santa and weather may save the day for brick and mortar retailers this holiday season; WTI expects gains of +2% or better! Ho Ho Ho. Be forewardned that cold and snow is likely to return during the last week gift exchange period so hopefully sales are made prior to Christmas.