Zacks Industry Outlook Highlights: Macy's, Best Buy, Aeropostale, Urban Outfitters and Amazon.com

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Dec 12, 2011, 09:30 ET

CHICAGO, Dec. 12, 2011 /PRNewswire/ -- Today, Zacks Equity Research discusses the Retail, including Macy's Inc. (NYSE: M), Best Buy Co. Inc. (NYSE: BBY), Aeropostale Inc. (NYSE: ARO), Urban Outfitters Inc. (Nasdaq: URBN) and Amazon.com Inc. (Nasdaq: AMZN).

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A synopsis of today's Industry Outlook is presented below. The full article can be read at

http://www.zacks.com/stock/news/66062/Holiday+Retail+Outlook+%26amp%3B+Review

According to a survey of the National Retail Federation, a whopping 226 million shoppers visited stores and went online over the Black Friday weekend, up from 212 million last year. The retailers offered deep discounts, early store openings and free shipping to online customers to make the most of the busiest shopping week of the year.

In order to get their share of pie, retailers like Macy's Inc. (NYSE: M) and Best Buy Co. Inc. (NYSE: BBY), for the first time this year opened their stores early. According to sales estimates, Best Buy marked a trend reversal from last year, as it drew an increased number of shoppers, while Macy's registered incremental sales.

Bonding with Shoppers

Of late, the retail industry has been experiencing a shift in consumers' shopping patterns. These days, shoppers are spending on essentials primarily and are looking for value-adds.

Across all income levels, shoppers are ranking value-for-price as the most important reason for store choices. Thus, the retailers are offering trend-right and well-designed assortments at compelling prices, without compromising quality, in order to improve merchandise margins.

Lingering Concerns

We believe that a slow-moving US and Asia, and recessionary fears in Europe, will continue to weigh upon consumer discretionary purchases. Further, inflation from rising commodity prices and significant disruption in global credit markets will create difficulties going forward.

Moreover, consumers remain sensitive to macro-economic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels, and high household debt levels, which may negatively impact their discretionary spending, and in turn adversely affect the growth and profitability of retail companies.

Beyond the macro factors, rising inventory levels remain a drag on the margins of softline retailers. Evidently, as in the case of Aeropostale Inc. (NYSE: ARO) and Urban Outfitters Inc. (Nasdaq: URBN), even deep discounts offered by them are not helping to tame margin pressures.

Addressing the Challenges

Every challenge comes with an opportunity and most of the retailers have pulled up their socks and incorporated many strategic measures to mitigate the top-line headwinds.

Starting from enhancing the supply-chain management to going global, from improving their productivity through operating efficiencies to bringing in the technological advancements, the retailers are trying to play every card dealt.

With consumers attaining confidence in the market and increasing their spending power, companies are focusing on cost containment, inventory management and merchandise initiatives to improve margins through leverage on buying and occupancy expenses.

Going forward, with the advent of technology, an increasing number of consumers are using smartphones and tablets to purchase items. A recent data released by ComScore Inc. justifies the stance and reports a 26% jump in online spending on Black Friday to $816 million. Thus, most of the companies have incorporated e-commerce platforms to bring in incremental gains.

The technological advancement in marketing such as, ecommerce and online business provides a win-win situation for both the retailers and shoppers, as it enables the companies to generate additional sales and broadens the company's existing customer base throughout the world. Moreover, it also enhances the visibility and reputation of the retailer as a global firm offering great fashion and value at the same time. On the other side, shoppers get the benefit of purchasing researched products at the best prices, as they can compare the prices being offered by various companies.

The ComScore data suggests that the online retailers experienced a notable jump in Black Friday activity in comparison to last year. Amazon.com Inc. (Nasdaq: AMZN) led the pack as it generated 50% more visitors than any other retailer.

Further, the international turf provides ample long-term opportunities for retailers to enhance their margins. Thanks to globalization, retailers have the opportunity to explore and add newer markets for their products by opening new stores or through e-commerce sites.

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