On a humid summer afternoon in New York City, three key market watchers who have convened at Footwear News’ headquarters to discuss the current state of retail are hard-pressed to find a jumping-off point. Store closures, bankruptcies, consumer shifts and the effect of one hard-to-ignore e-tail giant are all top-of-mind.
“There is definitely the structural concern — Amazon is having an impact on every retailer,” Canaccord Genuity Inc. analyst Camilo Lyon said, breaking the ice reflectively. “That’s fairly well-understood, and it’s becoming the de facto way of thinking.”
Nevertheless, company- and sector-specific shortcomings are hard to ignore, noted Susquehanna Financial Group LLLP analyst Sam Poser. “When it comes to how badly department stores are doing — it’s suicide and not murder,” he said bluntly of the meltdown, which has seen Nordstrom, Macy’s, Sears and J.C. Penney resort to a variety of tactics, including store closures and layoffs. “[These retailers] cannot say that external forces are doing this to them.”
Both Lyon and Berenberg Capital Markets LLC analyst Corinna Freedman* agreed that the effect of Amazon and other digital developments may be overblown in some cases and that other factors have significantly contributed to negative trends. “Assortment mix is definitely a problem for department stores — they have way too much apparel,” Freedman said.
In a spirited conversation, Lyon, Freedman and Poser got candid on retail’s biggest challenges, its most equipped performers and what it will take to power through.
What were the key issues impacting fashion firms in the first half of 2017?
SP: “This year is one of the weirdest calendars for retail that we’ve ever seen — everybody has gotten hurt by it. Tax returns move out of February into March, and Easter moves out of March into April and so on. The only company that had a good Q1 — and it wasn’t because their business was great but that they guided well — was Caleres with Famous Footwear. In general, though, business isn’t as bad as everyone is making it out to be.”
CL: “Amazon is affecting every retailer. However, within athletic, the bigger issue has been the cyclical [problem] that started with Nike going through an innovation lull last year. This year, more of Nike’s platforms have decelerated quicker, so it’s harder to mask those issues on top of the fact that you have everything that was strong for Adidas last year starting to slow down and contract. On the fashion side, we’re seeing more of the disintermediation impact because a lot of the channels that those brands sell through are seeing a slowdown from [Amazon’s] impact.”
CF: “We’ve had so much in the first half: the Amazon overhang, a terrible calendar and [dismal] weather. March through May was one of the wettest seasons we’ve had over the last 100 years, and June continued to be overly wet. Americans don’t shop when it’s rainy, and 80 percent of sales are still in brick-and-mortar. I believe sales have improved since the weather became more seasonable in July. I expect that we will see a nice inflection for the second…