Alipay — Welcome Chinese consumers, to the U.S. again. With shopping made a bit easier. The news dropped this week that Alipay is leveraging First Data’s merchant base, via Clover, to bring payments and presence on par with Apple Pay. There are 450 million Chinese who use the service globally. And given the fact that last year Chinese tourists traveling abroad spent $261 billion (according to the United Nations World Tourism Organization), a fair slice of that spend could wind up in U.S. businesses’ coffers.
Burger wars: When it comes to mobile payments, the proof is in the pudding — or the burger is on the bun. In the case of fast food, Burger King has the mobile payments crown, it seems. Mobile and specifically order ahead is set to get a push from the crown-wearing caloric king and seeks to reverse slipping same-store sales. In java land, through Dunkin’ Donuts and Waze and other names (perhaps you have heard of Starbucks), we’ve seen loyalty and enthusiasm; so will McDonald’s scramble to ketchup?
Banks vs. the CFPB: You wanna piece of this? Banks have been lining up to challenge the CFPB, in a bit of assertiveness, with an assist from the recently installed President (that would be Donald Trump) and Republican Congress. Of the 21 enforcement actions undertaken by the agency thus far in 2017, a full third have been challenged by those firms impacted by such regulations. The emboldened financial sector has now challenged, in the first four months of 2017, more regulations than it did in all of 2016.
Fizzle of the Week — Macy’s and Kohl’s: The Sick Canaries in Retail’s Coal Mine
Investors didn’t exactly have high hopes going into Macy’s and Kohl’s earnings reports yesterday (May 11). After several quarters of failing revenue, plummeting same-store sales, falling foot traffic and announced store closures from retail CEOs, retail earnings for the first quarter of 2017 were not expected to be stellar.
But somehow what investors got was even worse than their already adjusted expectations. Macy’s was hit harder — everything that was supposed to drop more or less did — and by a lot more than by what the experts were predicting. Kohl’s managed to beat on earnings — which the market liked — but whiffed on sales, which investors didn’t.
So how sharp were those fizzles — and what’s next?
Macy’s Terrible, Awful, Dreadful, Very Bad Earnings
By the numbers, there was a dearth of good news coming from Macy’s.
Earnings per share came in at $0.24 adjusted, missing analyst estimates of $0.35. Revenue was $5.34 billion — missing projections of $5.47 billion.
Same-store sales were down an attention-getting 4.6 percent versus the 2.7 percent drop the Street was looking for. All in, Macy’s reported a 39 percent drop in quarterly profits, with pressure from increasing inventory and falling margins. Net income fell to $71 million in the first quarter ending April 29, from $116 million a year earlier.
Macy’s says that comparable sales in 2017 will fall 2 to 3 percent. Total sales are still expected to be down 3.2 to 4.3 percent, while adjusted earnings are expected to be $2.90 to $3.15 a share.
Macy’s, for its part, reported that the result is “consistent with our expectations.”
“We are encouraged by the performance of the pilot programs we tested last year in categories like women’s shoes, fine jewelry, and furniture and mattresses,” CEO Jeff Gennette said in a statement. “We look forward to expanding these successful initiatives nationally this year and anticipate they will have a measurable impact on our performance starting in the second quarter, building through the fall. Additionally, our digital platforms showed continued strong growth in the first quarter.”
We should all take lessons in what it means to be an optimist from Mr. Gennette.
Gennette succeeded longtime CEO Terry Lundgren last month and has publicly stated that he would like to see Macy’s compete harder with off-price chains by bringing a model similar to that of Ross Stores or TJ Maxx into traditional malls. Macy’s Backstage, the chain’s off-price brand — has been rolling out for the last two years, and the plan is to now open 30 more Backstage-branded shops housed within Macy’s full-price stores by the end of 2017.
“In 2017, we are focused on taking actions to stabilize our brick-and-mortar business, including the testing and iteration of additional pilot programs in order to bring them to scale in future years. At the same time, we will invest to aggressively grow our digital and mobile business, while continuing the integration of our online and offline experience to allow our customers to shop the way they live.”
But as of right now, investors don’t seem convinced that Macy’s new leadership — and planned direction — will be enough to halt the death spiral. Shares price plummeted 10 percent and fell below its five-year low as the market closed.
If you’d like to get a sneak peek at where this is going, read Karen Webster’s Retail Darwinism and the story of Hutzler’s — the 132-year-old Grand Dame of Baltimore department store retailing that faced its own headwinds and tried to be something it was not. And died a long, painful and expensive death.
So, while silver linings are hard to find — and we can’t think of any for Macy’s — Kohl’s did manage to look slightly better by comparison since it also released earnings yesterday.
Which isn’t to say the news was good, exactly.
Kohl’s Sales Slump
Kohl’s did manage to show some green arrows pointing in the right direction. Total net income rose to $66 million, or $0.39 per share, from $17 million, or $0.09 per share, during the same time period a year earlier. That was a better outcome than analysts were expecting by a fair margin — Street expectations were calling for earnings of $0.29 per share.
Net sales, on the other hand, tumbled 3.2 percent to $3.84 billion, missing analyst estimates of $3.90 billion.
Same-store sales were also weaker than expected — falling by 2.7 percent instead of the 1.2 percent analysts had expected. The loss does represent a smaller drop than Kohl’s saw last year at this time — when comparable sales took a 3.9 percent hit.
“Continued strong inventory management led to a major improvement in gross margin, and our teams managed expenses exceptionally well,” CEO Kevin Mansell noted on the revenue beat.
“We are encouraged by the significant improvement in sales and traffic for the March and April period, after a weak February start to the first quarter.”
Gross margin was up for the quarter — to 36.4 percent from 35.5 percent during Q1 2016. But inventory fell — declining by 2.3 percent during the first quarter.
Analysts point to careful inventory management and a focus on cost reduction for the margin improvement. Falling sales, however, remain a concern. And what Kohl’s will do to more efficiently manage in the future were of primary concern to investors.
Kohl’s is actively working to reduce its footprint: It closed 19 stores last year, and in Boston it is actually shrinking some of its Kohl’s 100,000-square-foot stores, reducing them down to 70,000-square-foot stores and using the excess space to bring in other tenants.
Like Macy’s, it is talking up efficiency.
But like Macy’s, it also ended the day with its stock down — 7 percent.
Investors are running out of patience with turn-around efforts at department stores that never quite seem to turn.
It was a fizzly week for them — and traditional retail more generally. Whether this is the best of the worst remains to be seen.