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Cure for the Ailing Retailer?

Perhaps it will prove to be sheer genius, but at least for today, the market has voted it a disastrous experiment. What will increase apparel sales more than pizza?

 

As noted above, Urban Outfitters, a “young adult” retailer with more than 550 stores, announced today that it has acquired the Vetri Group, which operates 2 pizza restaurants in Philadelphia and is scheduled to open 3 more in the next 12 months. On its Q3 conference call, the company’s CEO stated that “future units can be stand-alone restaurants or part of a larger retail complex. A big attraction of this concept is the enormous breadth of its appeal. Very young to very old – everyone loves great pizza.” But will pizza drive the “very old” to a store that sells Ugly Holiday sweaters? [Insert hipster irony here.]

 

Retailers in the U.S. have had a very tough season, owing in large part to warmer-than-average temperatures. In the week leading up to Thanksgiving, the traditional kick-start to the holiday shopping season in the U.S., the news has been dim. Population-weighted heating degree days, which measure aggregate energy demand needed to heat the indoors based on outdoor temperatures, were 10% lower year-to-date (through November 11th) than the 2010-2014 average figures. Warmer weather keeps shoppers outdoors, and hurts sales of holiday sweaters--and boots and coats as well. Amid company announcements from Macy’s, Nordstrom’s, Dillard’s and other major retailers warning of earnings shortfalls, equity performance has been dismal. Since the beginning of September, the relative return for the S&P Retail ETF (XRT) against the benchmark S&P 500 has been -13.8%. Away from the U.S., retail (or the industry’s equity performance) has fared moderately better. But at least in the U.S.—where an environment of falling energy prices and (slowly) rising wages should be supporting consumption—the industry data suggest otherwise. The jury is still out, but a greater-than-average number of store closings may be one result of a weak holiday season.

 

Retail and Benchmark Equity Indices and Returns (09/01/15 – 11/17/15), Local Currency

 

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Heidi Learner

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