SUPPLY CHAIN

Competition Leads to Trends

BY Robert Gordman

The commonly reported monthly comparable-store sales change provides an interesting snapshot of one month’s performance. The longer-range trend provides a truer insight into what is actually happening with an individual retailer or in an entire channel. The following analysis highlights retailers that have established consistently improving or declining long-term comparable-store sales trends.

Observations

The shift in the Easter time frame has created much comment and speculation on what the comp-store sales actually indicate. While no one will ever know the real answer, I believe the calendar shift has briefly masked two significant trends. The first is Wal-Mart’s continuing deterioration against Target. About a year ago, Wal-Mart quietly commented on its effort to attract Target’s customers. The master of basics, at everyday low prices, stepped into an arena it does not understand and has paid a heavy price.

Quarterly Reporters With an Improving Nine-Month Trend

Source: The Gordman Group
Retailer Last Reported Quarter Last Six Months Last Nine Months
Best Buy 5.9% 5.5% 5.0%
GameStop 26.5% 22.2% 19.3%
Tiffany & Co. 9.0% 7.9% 7.1%
Tractor Supply Co. 8.5% 3.7% 3.3%

Monthly Reporters With an Improving Six-Month Trend

Source: The Gordman Group
Retailer March 2006 March 2007 Previous 90 Days Previous Six Months
BJs Wholesale Club 3.1% 5.5% 2.0% 0.7%
Fred’s 1.0% 4.4% 2.6% 2.2%
Gottschalk’s –3.6% 6.4% 0.4% 0.4%
Longs Drug Stores –0.6% 2.9% 2.2% 2.1%
Neiman Marcus 7.9% 10.2% 7.9% 7.1%
Nordstrom 4.3% 15.0% 9.5% 9.5%
Sam’s Club 4.8% 7.4% 3.6% 2.6%
Stage Stores –3.9% 12.4% 2.9% 2.9%
Wal-Mart US Stores 1.6% 3.4% 1.3% 0.9%

Monthly Reporters With a Declining Six-Month Trend

Source: The Gordman Group
Retailer March 2006 March 2007 Previous 90 Days Previous Six Months
CVS 7.0% 7.0% 8.1% 8.4%
Federated –1.1% 2.3% 4.7% 6.0%
Walgreen 4.3% 8.0% 9.0% 9.4%

Quarterly Reporters With a Declining Nine-Month Trend

Source: The Gordman Group
Retailer Last Reported Quarter Last Six Months Last Nine Months
Charming Shoppes Inc. –1.0% –0.1% 0.7%
Circuit City –0.5% 1.9% 3.6%
Dick’s Sporting Goods 2.0% 4.8% 5.3%
DSW 1.0% 2.0% 2.1%
Foot Locker –3.4% –1.9% –1.7%
Guitar Center 1.3% 2.0% 2.9%
J. Crew 7.0% 12.2% 13.4%

Target has perfected the art of taking a little bit of style and creating a hip image. Wal-Mart lost sight of its customers’ rules and stepped too far into a taste level few of its customers wanted. The fact that Target was up 7.3% in March over its 90-day trend and Wal-Mart was up 2.1% over trend for the same time frame clearly indicates what is happening.

The second trend is the squeezing of Macy’s between Nordstrom, Penney and Kohl’s. The challenge here is rather straightforward. If you are a customer for better merchandise would you rather shop at Nordstrom or Macy’s? On the other end of the spectrum, if you are a customer for moderate goods, which of the three would you shop? All of our research clearly shows the absolute driver of consumer behavior is selection. In this situation, Nordstrom out-assorts Macy’s in better goods, while Penney and Kohl’s does the same in moderate.

Robert Gordman is the president of The Gordman Group, Denver, and is the author of “The Must-Have Customer—7 Steps to Winning the Customer You Haven’t Got.”

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Weekly Retail Fix

BY CSA STAFF

THE NEWS: SAM’S REALIGNS STORE-LEVEL MANAGEMENT

BENTONVILLE, ARK. Sam’s Club is changing the management structure in its stores. In the realignment, approximately 250 positions will be eliminated, Wal-Mart Stores announced last week. The company said it’s replacing five lower level management positions at each Sam’s Club location with three new higher level and higher paying assistant manager positions.

“This is not a cost cutting effort. We expect a slight increase in payroll upon completion of this change,” said Sharon Orlopp, senior vp of Sam’s people division.

THE FIX: Differentiation would better help Sam’s

Since Sam’s decided that its refocus on the business customer was too narrow, it has sought to find ways to make its clubs more attractive to primary shoppers, i.e., women. And that’s a pretty tough row to hoe, as Costco has done a pretty good job at satisfying the club customer in general and BJ’s has been going after female shoppers for several years now, with some success.

Having fewer managers with more direct responsibility could create a tighter knit club-level management and shorten lines of responsibility and accountability. Yet, without differentiating the offering, execution isn’t going to overcome all of Sam’s challenges.

That being said, a store-level management realignment might be overlooked at other retailers, but, this being Wal-Mart, everyone has to make a big deal about it. But that’s the price you pay as the big guy on the block.

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Weekly Retail Fix

BY CSA STAFF

THE NEWS: TOYS ‘R’ US EARNINGS GAIN 40.1%

WAYNE, N.J. Toys “R” Us today posted net earnings of $199 million for its critical fourth quarter, which meant it turned a profit for the fiscal year ended Feb. 3. But special charges and gains had an impact on its numbers.

Sales for the previous fiscal annum were $142 million, the difference translating into a net earnings increase of 40.1% year over year. For the last fiscal year, Toys “R” Us posted net earnings of $85 million versus a net loss of $384 million for the previous period.

Operating earnings in the fiscal 2006 fourth quarter gained 53.1% to $571 million versus $373 million for the fourth quarter of fiscal 2005. For the last fiscal year, operating earnings were $649 million versus an operating loss of $142 million for the previous period.

THE FIX: Improved shopper experience ups comps

Of course, any observer has to take into consideration special financial circumstances. Fiscal 2006 operating earnings were positively impacted by $96 million from gains on property sales, slightly offset by restructuring and other charges. In fiscal 2005, operating earnings were negatively impacted by $410 million in costs relating to the merger of the company, as well as $58 million of costs and charges relating to contract settlement fees, restructuring and other charges.

Still, sales were trending up at last year’s end. Net sales gained 15.8% to $5.7 billion. In the full fiscal year, net sales advanced to $13 billion, up 15.2%.

Comparable-store sales for the Toys “R” Us’ U.S. division gained 0.6% in fiscal 2006, and that represents the division’s first comps increase in six years. Comps at Babies “R” Us were up 4.8% and those at Toys “R” Us international were up 2.6% for the fiscal year.

Jerry Storch, chairman and ceo of Toys “R” Us, said the company is “pleased with the strides we made in fiscal 2006 to improve at all levels of the organization and reposition the company for profitable growth over the long term.”

He said the company’s new management team has been focusing on executing a strategy that would turn the retailer into a global toy and baby products authority.

“This translated into higher overall sales, positive comparable-store sales, improved gross margins and strong operating earnings growth for the 2006 fiscal year,” Storch asserted. “The key to our strategy has been improving the customer shopping experience in our stores. We are accomplishing this by delivering a more compelling merchandise selection, better service and a cleaner and more comfortable shopping environment.”

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