How the Grinch Stole Retailers' Christmas

Gerelyn is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

It's the most wonderful time of the year for retailers except for the scrooges that are making it less spectacular for stores and shoppers alike. The incidence of theft rises during the holidays, and 2012 is expected to be no exception. The retail industry is poised to lose nearly $9 billion this holiday shopping season from theft originating from common criminals to companies' own employees, all according to trade publication Apparel.

Unfortunately, criminal activity at retailers in this final quarter of the year is growing at a faster pace than GDP. This year's anticipated scrooge-inspired loss represents a 4% increase over last year. Not only does it eat into retailers' profits, but also ultimately finds its way to the consumer. Theft is expected to add nearly $100 to the average shopper's experience, the article suggests. 

Clearly, it's a setback for an industry that has been experiencing its share of headwinds already.

Department store retailer Macy's (NYSE: M), with dual headquarters in New York and Cincinnati, reported disappointing November sales this year. November same store sales declined 0.7% versus the same period last year, while total sales of $2.4 billion represented a 0.6% drop from November 2011. The company stumbled right at last month's start as a result of Hurricane Sandy, which forced the retailer to temporarily close some of its stores at the worst possible time. Nonetheless, Macy's management team says the company is expected to deliver inline fourth-quarter results. 

Macy's 4Q Forecast

  4Q Estimates  
Same-Store Sales Up 4.2%  
Earnings Per share Between $1.94-$1.99 per share (diluted and excluding charge)  

Macy's shares are up 17% year-to-date, but fell 6% since the fateful month of November. Investors are not demonstrating the optimism that Macy's is attempting to relay about December.

Judgment Day

Theft is unfair, but a poorly executed sales plan is a whole different story. Big-box retailer Target (NYSE: TGT) teamed up with luxury retailer Neiman Marcus to offer consumers a high-end alternative for clothing and household items not typically offered by the discounter. Compared with Target's 2011 high-end venture with Italian designer Missoni, this year's results are a bust thus far, according to The Wall Street Journal

Target officials tell the WSJ, however, that unlike the Missoni deal, which incidentally was an instant hit last year, they are looking at the Neiman Marcus partnership as a long-term venture. So far, the response to the Target/Neiman Marcus line as evidenced by early sales and shoppers has been disappointing, according to analysts cited in the WSJ.

Like Macy's, discount retailer Kohl's (NYSE: KSS) had a lackluster November performance. The company's same store sales dropped a more severe 5.6% versus last year's results in the same month. Investors exited the stock in droves, as the share price has suffered a near 20% decline since then. Similar to Macy's, Kohl's was adversely impacted by this year's hurricane although anecdotally has begun to see a turnaround.

Kevn Mangell, Kohl's chief executive, said that brick and mortar and E-commerce sales were increasing in the final week of November and that much of that sales momentum would be recognized in December. The stock has a forward P/E ratio of only nine based on fiscal 2013 earnings estimates cited Barron's.

There may never be an antidote to eliminate the losses experienced at the hand of retail's criminal scrooge. It places an additional burden on retailers that are already competing fiercely for every square inch of market share they claim.  The additional $100 that every consumer winds up paying to make up the difference for theft-related losses could do a lot more good were it freely directed back into the economy.

 


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