Summary
Same store apparel sales for holiday 2009 will likely be flat or down but those retailers with improved gross margin and sharply reduced expenses are positioned to win big once consumer confidence returns.
Improved product development strategies, sharper merchandising, greater speed to market and well managed inventory levels are the keys to greater gross margin in what will likely be another highly promotional holiday retail environment.
Analysis
- When evaluating apparel retail performance trends the first metric looked at by many investors is same store sales, but this year gross margin improvement and reduced cost structure may provide more significant clues into the long term outlook for the typical apparel retailer. When a retailer sources sharper prices, develops more efficient logistics, improves merchandising strategy, achieves more accurate inventory forecasts and greater speed to market the big payoff will be on the gross margin line. The sharply reduced inventory levels evident at most apparel retailers and an ambivalent apparel shopper will keep same store sales flat or slightly below last years comps.
- The SG&A line will tell investors and analysts whether or not the company has reduced costs and streamlined their organization to better cope with declining sales the highly promotional environment they will encounter in the fourth quarter of 2009. Those retailers that have cut costs efficiently will also be positioned to deliver a much brighter earnings picture once consumer demand improves .
- In evaluating the earnings picture of a major apparel retailer it more important than ever to make sure that gross margin and SG&A have been improved and not just focus on sales which are sure to be challenged this holiday season.
Martin Brill consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
