Summary
People ask if we have turned the corner on a recession. They say the positive / stability of sales to plan is a indicator that we have turned the corner to recovery. I say the opposite. Gap , American Eagle, plus a slew of other mall based retailers who are achieving and beating their plans are doing so because the consumer is reacting to value. Value is king now and retailers who provide a better value equation compared to others will win market share in this level off period.
Analysis
Gap and American Eagle are doing well to their plans because they are offering value. The customer who in past years might of bought $100 and up brand denim has traded down to the moderate priced mall based retailer. This segment can offer denim of $29.99-$60.00 which is a value purchase compared to the $100+ trends we have seen the past 4 years. The q3 business is driven on denim and everything plays off denim. These retailers are doing better because they offer a core quality product which is branded but at a value consumers can relate to. If we look at transactions we are selling cheaper things compared to last year but the traffic and transactions are good compared to last year. So people will spend money just where they see the value. If we are trending on value then we have not turned the corner to recovery but are stable at a lower point from the past few years. When people come out on a tues night w/ no promotions and buy full priced product then i will say we have turned the corner. Everything is selling on value and promotional strategies. In this environment the retailers who offer the best value can do better than the others. These are Aeropostale, American Eagle, Wal-Mart, Target, Gap, Kohls, & JCpenney . At the same time do they start affecting each others sales and margin? To this point no but that is the fear for all retailers for holiday. There are others but these are the key value providers relative to their competition. For more depth please reach out to me and I can explain in greater detail w/ specifics.
Jason Kra consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
