Moody’s: No letup in sight to off-price growth
Off-price retailers will remain among the top performers in the U.S. retail industry during the next 12 to 18 months.
That’s according to a new report from Moody’s Investors Service. The outlook is not as positive for department stores, which will continue to struggle as they seek to level the playing field with both off-price and online vendors.
Moody’s expects operating income in the off-price sector to grow 6.9% in 2017 and 5.4% in 2018. Department stores will see operating income decline 9.3% this year and 2.7% in 2018.
“Off-price retailers continue to outperform other sectors of the U.S. retail industry largely because they offer the kind of lower-cost, higher-value products and shopping experience many consumers are looking for,” said Moody’s analyst, Christina Boni. “Off-price stores are far outstripping department stores, which in contrast are still struggling with outmoded formats and supply chains that can’t keep pace with customer demand.”
The report noted that department stores are mostly taking the right steps to resurrect their businesses, but it’s too early yet to know how well they’ll succeed. In particular, department stores been exploring new ways to drive traffic through e-commerce offerings and partnerships to spur growth. While Kohl’s Corp. has its own online platform, for example, in addition it offers Amazon products at 10 of its stores and accepts Amazon returns at 82 of its locations.
Despite their lack of e-commerce penetration, off-price retailers have succeeded where department stores have foundered due to their focus on delivering major label brands at significant discounts to value-hungry consumers, Moody’s said. Off-price vendors also outperform the broader universe of U.S. apparel-focused retailers.
While apparel sales make up the bulk of their sales, off-price retailers have been increasing their product mix in the higher-growth and less competitive home products category. Moody’s estimates that home product sales at off-price stores grew 9.9% in 2016, compared with 7.8% for the off-price sectors overall growth.
Retailers paying more for holiday help
As the holiday season kicks into gear, retailers' seasonal hiring plans are coming into focus.
Fifty percent retailers are hiring seasonal employees, on par with last year (49%), according to a survey conducted by Harris Poll on behalf of CareerBuilder. Retailers are becoming more competitive in terms of what they are willing to pay seasonal workers. Two-thirds (66%) of retailers who are hiring holiday workers will pay them $10 or more per hour, a big jump from 53% in 2016 and 43% in 2015.
"Our survey is pointing to a significant year-over-year gain in permanent hiring and a smaller boost in seasonal hiring in Q4, though the short-term effects of hurricane damage on the U.S. mainland remain to be seen," said Matt Ferguson, CEO of CareerBuilder and co-author of The Talent Equation. "One of the most telling trends from our research is the fact that many employers are willing to increase pay for both permanent and seasonal staff. This speaks to the sharpening competitive dynamic among employers that we have seen throughout 2017."
The survey also found that the percentage of employers who are transitioning seasonal employees into permanent staff has reached a new high (70%) and has grown at an accelerated rate over the last few years. Looking across industries, 35% of employers are planning to have extra hands on deck to help with increased demands over the holidays, wrap up the year or ramp up for 2018.
Costco ends year on an upbeat note
Costco Wholesale Club reported better-than-expected profit and revenue for its fourth quarter.
Net sales for the 17-week fourth quarter ended Sept. 3 rose 15.8% to $41.36 billion from $35.73 billion in year-ago period, which had 16 weeks. Total same-store sales rose 6.1%, with a 6.5% increase in the U.S. and a 4.9% increase in Canada. International same-store sales rose 5.6%
E-commerce sales in the quarter were up 21%. Membership fees rose 13% to $943 million.
Costco's net income for the quarter was $919 million, or $2.08 per diluted share, compared to $779 million, or $1.77 per diluted share, last year.
Net sales for the 53-week fiscal year rose 8.7% to $126.17 billion. Net income was $2.68 billion, or $6.08 per diluted share, compared to $2.35 billion, or $5.33 per diluted share, last year.
Costco ended its fiscal year with 741 warehouses in operation, including 514 in the United States and Puerto Rico, 97 in Canada, 37 in Mexico, 28 in the United Kingdom, 26 in Japan, 13 in Korea, 13 in Taiwan, nine in Australia, two in Spain, one in France and one in Iceland. The company also operates e-commerce websites in the U.S., Canada, the United Kingdom, Mexico, Korea and Taiwan.