Stocks Still Rise After June Sales

July 10, 2009

Retailers with a value message showed signs of strength on Thursday even though overall June sales were a bit of a disappointment.

Sales at stores open at least a year, or same-store sales, fell 4.9 percent in June according to the Thomson Reuters index. But a handful of companies posted stronger sales, including TJX Cos Inc, which runs discount-oriented chains such as T.J. Maxx.

The Standard & Poor’s retail index is already up 11 percent this year and rose less than 1 percent on Thursday, while the S&P 500 has fallen nearly 3 percent in 2009.

Have investors made all of the money they can betting on retail’s rebound following a rough 2008? Is there more room for growth?

KEEP BUYING

“I would say look at value, look at consumables and those are really the two major themes,” said Sarah Henry, a retail analyst at MFC Global Investment Management. “I think there’s some more opportunity there left this year.”

“There are clear market share beneficiaries, the big one this morning, by far, was T.J. Maxx, you can see how powerful it is. And of course yesterday we saw Family Dollar really performing very well in this environment,” Henry said.

Retailers with better balance sheets and cash flow have been able to squeeze some concessions on costs from vendors, a move mentioned by Family Dollar and alluded to by Target Corp, she said.

“There’s a meaningful earnings driver here in companies that are more flexible with their cash flow,” she said, adding that others such as TJX and Wal-Mart Stores Inc could see similar benefits.

NO REAL DEALS FOR NOW

“Is this the best time to buy retail stock? Probably not. The consumer remains very weak. There are still limited signals there will be a return to growth,” said Eric Beder, an analyst with Brean Murray Carret, noting that investors need to judge on a company-by-company basis.

Short-term traders have to be particularly careful, he said.

“If you’re trying to trade these names you’ve got to have a really tight trigger finger. If you’re looking for longer plays there are a lot of strong companies trading near their low … they have potential to drive upside when the consumer comes back,” Beder said.

Short-term investors need to look at sectors that provide good value, Beder said, citing Aeropostale Inc and Family Dollar as two stocks that benefit from consumers’ focus on affordable goods.

Longer-term investors need to look at the concept and quality of management, he said, citing Urban Outfitters Inc, Warnaco, True Religion and Guess? Inc as companies with “significant potential growth” once the downturn is over and “lots of cash.”

HOLD ON

“People always say if you are looking to buy stocks, if you are an investor in the industry, sometimes the best time to buy is in the worst of times. (You) say, ‘how low can it go?’ Problem is, it could stay still for a long time,” said Al Ferrara, director of the retail practice at BDO Seidman.

“I would be neutral on the retail sector. I wouldn’t be an aggressive buyer. Whatever you have, hold. I wouldn’t be putting more money into the sector now. I don’t think the worst is over for it.”

For further information, visit: http://www.reuters.com/article/pressReleasesMolt/idUSTRE56861K20090709?pageNumber=2&virtualBrandChannel=0

Aeropostale Heading Towards Success During the Recession

June 9, 2009

While most members of the U.S. retail industry are focused on cutbacks and survival tactics, Aeropostale continues to defy the recession and post numbers that would be impressive even in the best of economic conditions. The teen apparel chain has been killing its competition, topping the same store sales charts, and rocking Wall Street investors with a 40% rise in stock prices since the recession officially began.

U.S. retailers aren’t the only ones asking how Aeropostale is doing it, and stock analysts aren’t the only ones wondering how long the winning streak will last.

Aeropostale’s CEO, Julian Geiger actually seems very eager to tell people how they do what they do. In an interview with Business Week way back in 2004, Geiger very openly revealed the company’s marketing tactics, which are relentless and somewhat unconventional for an apparel retailer. Specifically, Geiger revealed that the Aeropostale marketing team employs these strategies:

* Following trends instead of trying to be a trendsetter

* Looking at what’s on the backs of their target market, instead of what’s on the sales floors of their competitors

* Observing teens in theme parks, concerts, and airports instead of observing them on the streets of international fashion cities

* Allowing teens to view potential new styles, and stocking stores with the teens’ favorites

* Using 50 locations as test stores where new merchandise and merchandising is tried out prior to system-wide rollout

* Remembering that most teens are fashion followers, not fashion leaders

Either Aeropostale’s competitors didn’t read that interview or, if they did, they weren’t savvy enough to realize the brilliance hidden within the simplicity of the approach.

While cutting edge manufacturing, distribution, and operations management are supporting its success, there’s one timeless retailing principle that’s really the driving force behind the Aeropostale chain. That is, the customers get what they want.

This simple tenet is quite antithetical to the more popular marketing approach of working really hard to convince customers to want what you have, which is a strategy, by the way, that isn’t working very well for any retailer right now. In contrast, Aeropostale has discovered that when you ask teenagers what they want to spend their money on, and then you make those things available, the kids actually bring their money to your store. How radical!

Aeropostale works hard to engage consumers in other ways besides marketing research. This year the store bonded with its youthful customer base at an emotional level with its “Teens for Jeans” charity project. More than 200,000 pairs of “gently used” jeans were gathered and donated by teen customers to be redistributed to their homeless peers. The project was green, it was activist, it was compassionate, and it was the perfect hip program for the store to insert itself into. With its active participation in the project, Aeropostale gave a human dimension to its brand that advertising dollars and publicity hype could never manufacture.

The Aeropostale we see today is miles away from it where it began, as a small department within the Macy’s chain in the 1980’s. After spinning off and floundering, Aeropostale was rescued from obscurity by Geiger, who defined the brand, built the chain’s identity, and gave Aeropostale a unique selling proposition that is clearly uniquely appealing to its niche. It would be great if its birth parent chain could reinvent itself in a similar way.

In June Aeropostale is bucking the recession again, by opening up a new concept store, P.S. Aeropostale, which is really just a younger version of itself. The new stores are aimed at the 7-12 year olds who have been shadowing their older siblings through the Aeropostale stores, but leaving empty-handed. While moms have worked hard to ignore the whines of their younger children, Aeropostale has worked hard to listen to them, and create a whole store based on their pleadings. If the chain continues to employ its own successful strategies with these spinoff concept stores, there will undoubtedly be a second reason for investors to be happy, and for retailers to shake their heads in wonder.

All of this because customers are getting what customers want? It’s hard to believe that it could really be that simple. Perhaps somewhere along the way retailing got more complicated than it ever really needed to be.