"Mall Crawl: Discounts Lure Shoppers" (BW, Oct 4, 06) makes for great reading because it explains two different things: which retailers are doing well, and how analysts decide which retailers are doing well. Consider this passage:
Unfortunately, we just don't see the Audrey Hepburn ads reversing Gap's same-store sales decline. Merchandise selection may be improving, but we estimate about a third of the store is on sale. The service was helpful, in contrast to Gap's upscale sister brand, Banana Republic, where service, in our opinion, was scanty and the presentation deplorable—especially alarming given CEO Paul Pressler's acumen at staging from his years running the theme parks at Disney.
A few blocks over, at Ann Taylor, the sale was in the basement at 50% to 60% off, and new merchandise was beckoning shoppers along with 15% to 20% coupons for the retailer's credit card holders. About 10 blocks uptown, Ann Taylor Loft had 60% off clearance along with $25 bounce-back coupons for each $50 spent—almost as aggressive as Express.
This article came out right before companies reported their September sales trends. For those keeping track of these things at home: companies report their same-store sales comparisions, a metric that basically asks, "How much merchandise did existing stores sell this year, compared to last year?" The idea is that same-store sales growth (a.k.a. "positive comps") indicates return customers or growing awareness/desirability for the retailer.
So now you'd like to know how the Gap and Ann Taylor did in their Sep comps?
Well, if you're Ann Taylor, mostly good. Analysts had expected its Ann Taylor brand to see a 5.8% increase in sales over last September, and that chain reported a 9.6% increase, so it beat expectations. However, Ann Taylor Loft was expected to increase its same-store sales by 4.3% and it biffed with a scanty 1.4% increase. This probably didn't surprise the analysts -- the huge clearance prices (60% off) combined with the coupon promos tell you that the chain's merchandise didn't go over as well as it had hoped. On the plus side, Ann Taylor Loft had seen its Sep 05 sales shrink relative to Sep 04, so at least the chain's reversed that trend, right?
If you're the Gap, however, the news is slightly different. The good news first: the numbers for all three chains (Banana Republic, Gap, Old Navy) look better this Sep than they did in Sep 05. More good news: two out of the three chains actually beat analysts' expectations. But guess which one didn't? That's right -- the flagship Gap brand saw its domestic comps slide 5% from last year, while its overseas comps fell 6%. I went back and checked the Gap's same-store sales numbers for the past 12 months. The only month where it didn't lose sales compared to its year-ago counterpart: January 2006.
I am betting that within the next few weeks, we'll see articles percolating through the business press with headlines like "Will GAP turn it around for the holidays?" Some analysts think it will. And when you see that article ... well, you'll be able to say, "I told you so!"