Something's rotten in retail these days.
Shares in Express plummeted by as much as 17 percent Wednesday, their biggest one-day drop since 2013, after the fashion retailer reported a 3 percent drop in comparable-store sales from a year ago in the first quarter and cut its full-year financial guidance.
The company joined a long list of other retailers blaming its malaise on a spring slump. Listening to comments from retail executives on their earnings calls this quarter, one would think some sort of national disaster happened in mid-March, when sales to Express and many other major retailers "literally just dropped off," as Express CEO David Kornberg put it on Wednesday.
Similar comments about the scourge of late March and April have come from more than a dozen retailers. Gap, for example, said traffic "fell off precipitously the week before Easter." Shoe retailer DSW said "sales weakened measurably in late March." Target, Hibbett Sports, and Children's Place all spoke of a slowdown around the same time. Many blamed a general consumer weakness -- despite the fact that macroeconomic measures such as employment and spending remain strong in the U.S.
But there was no macro slump, and no disaster -- just deep discounting.
As the quarter was winding down and retailers realized traffic was stubbornly sluggish and they hadn't sold as much stuff as they had hoped, many began increasing discounts in an attempt to push out more clothes and other goods.
More than 70 percent of the 21 retailers covered by Wolfe Research analyst Adrienne Yih Tennant had deeper promotions in the last week of March than the same period a year before. Promotions can bounce around week by week. But throughout the first quarter, about 60 percent of retailers had deeper promotions than a year before, which matched the pace of discounting in the fourth quarter of 2015, according to Tennant. The fourth quarter, of course, includes the holidays, the most promotion-heavy time of the year.
Typically the first quarter is when retailers pull back on discounts and try to attract shoppers with new products, on which they can charge full prices. Instead, deep price cuts in this year's first quarter drove shoppers toward highly promotional stores and away from companies such as Express, which is trying to ease up on discounting in order to boost margins. And while highly promotional stores such as Gap may have benefited a little from discount-driven sales, high markdowns meant the overall dollar amount of goods sold was lower. Many of those discount-heavy retailers took a hit to their margins.
It's time for retailers to stop blaming a weak consumer for their sales slump. It's true they face industry-wide challenges such as online retailing and consumer preferences. But they need to realize that the way they are fighting back -- by offering holiday-like promotions and hoping for the best -- is hurting them even more.
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