Increased Store Closings After Holiday Peak Season Ends – How Do We Respond?

As Business Reaches a Crossroads, Store Closings and Bankruptcies Sure to Continue

As Forbes has reported, store closings went up 25 percent in the last months of 2012. CEO of Tompkins International Jim Tompkins believes that in 2013-2014, there will be bankruptcies than in any other previous two-year period. As and stores close, and on sales continue to grow, Jim los at these and other major tipping points that company leaders need to address, both in operations and in the supply chain.


Thanks for listening today. We are taking a closer look at some recent store closings that are making the news. Forbes reported that store closings were up twenty-five percent in the last 9 months of 2012, when compared to 2011. CEO Jim Tompkins is here to go over what this means, especially considering that online sales are now nine percent of total retail sales in the U.S., which is up from five percent five years ago.

Jim, you predict that in 2013 to 2014, there will be more bankruptcies happening than any other two-year period. Considering higher rates of store closings, especially just coming off of holiday 2012 peak buying season, what is your take on this development?


Well thank you very much, and it is very good to be here and talk about what’s going on with holiday 2012, and certainly the store closings and the impact of online is huge, and it is going to have huge implications as we move forward. The stores closings and the 9% of total retail sales being online are kind of the headlines, but there is a lot that goes behind them. So what we need to do is really look at what happened at holiday 2012 — and how do we respond to it?

I think one of the most interesting aspects of holiday 2012 is that online sales grew 16% and that in-store, they only grew about 2.8%. So: a huge difference in the growth rate. And this accounts for a threshold or a tipping point, a boiling point, where we are seeing folks really, really want to shop online.

There are a lot of people three years ago that would never have thought about shopping online, that in 2012, they did the majority of their shopping online. So we have really hit that tipping point where online shopping is gaining momentum, and I don’t think it is going to turn back. I think folks enjoy online shopping, and they are going to continue to go there.

The challenge we have is with retailers trying to segment that, and to think about that in ways that are not really maximizing their profitability. I don’t think we should be talking about, “Am I profitable online versus am I profitable in-store,” that’s not what it is about. What it is about is; are you overall-profitable, and what does online bring to the table, and what does in-store bring to the table.

I think more often than not these days that online profitability is low, but it is the online customers that we find that come to our stores, as a result of their online experience. And so a lot of online customers are coming into our stores to shop, as a result of them being pleased with what we have done with our online offerings.

I think what we are seeing is an acceleration of promotions and markdowns, some of which are intelligent and some are just reactionary. I think that there are going to be many companies that wake up in February 2013 and say, “Oh my goodness, what did I do for holiday 2012? I gave away free shipping, I gave away free returns without understanding what it meant. I gave up 60%; I had 60% promotions without understanding what it meant. I said I would match prices, which really allows my competition to set my prices, without them understanding my cost structure.”

So I have predicted that there is going to be a record number of retail bankruptcies in 2014, I think that was conservative. I think bankruptcies are starting in 2013.

But let me go back and analyze holiday of 2012 a little bit more. I like the song “12 Days of Christmas.” I am not going to sing it for you today, but the twelve days of Christmas is a very interesting song, and I think how there are five different verses to that song.

The first verse I would call Pre-Turkey. This year Pre-Turkey was from November 7th through November 18th. What we were seeing was promotions being advertised before Thanksgiving. These are being advertised as Christmas specials, and so promotions are running very heavy, even in early November. If you then look at the season in the twelve days of Christmas that I call, Turkey, November 19th– November 30th, here we have Thanksgiving Day, Black Friday, and Cyber Monday.

Now the interesting thing is that Black Friday is no longer a day, it’s now a week. Cyber Monday is no longer a day, it is a week.

So what we start seeing is that the promotions for Black Friday are being “leaked, “ I use that term with quotations on it, sometime in early November, so people are planning their Black Friday purchases in early November. and then they can actually get to those Black Friday promotions as of November 20th, two days before Thanksgiving.

Cyber Monday is in fact not just a day, it is a week. It is 26, 27, 28, 29, and 30. That entire week we have Cyber Monday sales. Then we have the Post-Turkey twelve days of Christmas. And the Post-Turkey twelve days of Christmas is from December 1st through December 12th.

And there we have one of the busiest weeks of the entire shopping season, I call it cyber week. December 3rd, 4th, and 5th were huge days driven by promotions. We also have Green Monday, which is the 10th. Green Monday is different than Black Friday and Black Friday is the day that the retailers turn black, and on December 10th is when retailers really start minting the green. And Green Monday, just like Black Friday and Cyber Monday, don’t just last one day, it lasts Green Monday, Green Tuesday, and Green Wednesday. We are seeing a huge amount of promotions Post-Turkey.

Then we have pre-Christmas, which runs from December 13th up to December 24th; the big promotion here is that we see people pushing the free shipping day. And the free shipping day turns into a free shipping week. Where starting on December 17th running all the way up to December 22nd, we find that people are doing promotions and doing free shipping.

Then the last verse of the twelve days of Christmas is Post-Christmas, from 12-25 all the way up to January 5th. There, obviously, we have Christmas day and the week between Christmas and New Year’s Day, which Macy’s calls “The Week of Wonderful.” We have the redemption bonanza going on, and we have an unbelievable volume of returns taking place. We have a lot of store traffic, a lot of folks that bought online, return it to store; a lot of folks that bought in store, return in store. So there is a lot of activity in the stores between Christmas and New Year’s, and then what we find is that it continues all the way up until early January.

Stanley Bing from Fortune magazine has also suggested that we add to the calendar a date which we call Stupid Tuesday. Now he calls it Stupid Tuesday, because what happens is there are stupid prices, on stupid stuff, that would be stupid not to buy. But this Stupid Tuesday is so stupid, that since Christmas took place on Tuesday, this year Stupid Tuesday took place on Wednesday, the 26th. What we are finding is that there are promotions and deals, and that people are absolutely cutting prices like crazy, and there is a huge level of competition out there. We are seeing that Amazon came out with Prime, they added Canada to Prime as a Christmas promotion, but now they are keeping it on even after Christmas. We are finding that this loyalty program by Amazon is huge.

We find that there is a huge battle going on in the search world. Amazon has thirty percent of all searches done, by people that want to shop. Only thirteen percent of the people that want to shop go to Google, and as we know Google’s advertising is being driven by shopping. So what we are going to see next year is a huge battle between Amazon and Google, and now Facebook is in the game as far as who is going to get the advertising dollars. So there is lots going on there.

If we look at what happened in Holiday 2012, there was huge, huge, huge discounting. I almost felt like every time I opened my computer I saw the twelve deals of Christmas, where people were matching those or doing better. The flash sales were really going wild; they had the electronic version of the door buster sales. We saw longer store hours, longer days, and more hours. We saw the reality of omnichannel, where online and in-store came together. We saw the reality of instant gratification with same-day delivery in many cities, we saw pick-up in store, where you click and collect, price matching, leaked ads, we saw the return of layaway, and we saw a lot of gift cards. We saw a lot of uncertainty as a result of the fiscal cliff, Hurricane Sandy, consumer confidence, … there have been a lot of challenges.

I think we have a lot of margin challenges, where a lot of companies gave away their margins over the holiday, and these are the ones that are going to wake up in February and go: Oh my goodness, our sales were only up two percent, but our margins were down fifteen percent, and there are going to be some real, real challenges.

This is one of the things that is driving the store closings that you mentioned up front. Fashion Bug is going to close an additional 600 stores, Charming Shoppes is closing that line. Abercrombie & Fitch, who are profitable, they are doing well as a company, they are closing 180 stores because they say they have excess capacity and unprofitable mall stores. Blockbuster is claiming they are going to close 500 more stores, which only leaves them with 1,000. How long before the rest of those are gone, I am not sure.

And then we have folks that are closing stores, and worse, suspect if they are even going to be around. Sears’ market cap is down 50%, Best Buy’s market valuation is down 71%, J.C. Penney is down 22%, and RadioShack is down 88% percent, the value of their stock.

Holy cow, what happened to RadioShack? Their sales were actually up a little bit, but their sales that were actually up a little bit resulted in much less margin, because they shifted from selling profitable computers down to mobile phones and tablets, where profit margins are low. So although sales weren’t anything to write home about, the margins were really, really negative. Johnson and J.C. Penney, too much change, in too little time. Does he have enough cash to keep this thing running? Eddie Lampert is now over running Sears and he is going to close an additional 172 more stores. He already has 88 more stores that are kind of moth balled, and how much more can Eddie sell? Is he going to sell Craftsman? Kenmore? What other assets is he going to do? And then Best Buy, sales were down 4.3%, so really some suspect folks out there that is really going to account for a tremendous amount of store closings.

Now that is interesting, because as we have stores close, we have retailers going out of business, but guess what? The market is still climbing. That means the people that remain need to add supply chain capabilities. What we are going to find is that there is going to be growth in the marketplace, but it is going to be a shift away from companies that don’t have a strong retail strategy, who haven’t defined their supply chain capabilities, and do not have a technology road map going forward.

I think what we are going to find is that Holiday 2012 will be one of those water-shed events, that results in a lot of companies going out of business. And the companies that hang around are going to have a greater appreciation of the need to come up with a winning retail strategy for themselves, to really develop strong supply chain capabilities that are needed, and to implement the appropriate execution technology.

I think exciting things are ahead for those that make it through 2013 and 2014, but we really need to make sure that we focus on supply chain excellence. Because without that execution, we’re not going to be successful going forward. Appreciate it, good to be with you today, thank you so much.

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