Lord & Taylor’s owner Hudson Bay increasingy focused on digital

Lord & Taylor’s owner Hudson Bay increasingy focused on digital

What can we say other than it’s the latest sign of the woes faced by traditional brick & mortar retailers – the closing of once iconic flagship locations as they are caught between the push-pull of our investment themes. In this case it’s the accelerating shift toward digital shopping that is part of our Connected Society or Digital Lifestyle investing theme as well as our Cash-strapped Consumer one.

While Hudson Bay once expected to keep a scaled down version of the iconic Lord & Taylor location on Fifth Avenue, it has since decided to throw in the towel all together. Future generations may never know the beauty of Lord & Taylor’s Holiday Windows… unless Hudson Bay gives them a digital makeover as well.

 

Hudson’s Bay (HBAYF), the Canadian-based owner of Lord & Taylor and Saks Fifth Avenue, agreed last October to sell the Fifth Avenue store to WeWork for $850 million. The iconic store is located between 38th and 39th Streets and not far from Times Square.

The original plan was for the store to become WeWork’s New York headquarters after the 2018 holiday season. After that, approximately 150,000 square feet of the building would continue to be run as a scaled-down Lord & Taylor.

But that is no longer the case. Hudson’s Bay said late Monday that it “has decided not to maintain a presence at [the Fifth Avenue] location following turnover of the building to WeWork.”

The company said that “exiting this iconic space” — which first opened in 1914 — is a reflection of “Lord & Taylor’s increasing focus on its digital opportunity and [Hudson’s Bay] commitment to improving profitability.”

Hudson’s Bay is turning to Amazon rival Walmart (WMT) for assistance in the digital shopping arena. Walmart announced last November that Lord & Taylor will have a flagship store on Walmart.com.

The companies added last month that the online store is set to launch in the coming weeks with more than 125 brands and will feature free two-day shipping for orders over $35.

Source: Lord & Taylor is closing its 5th Ave store

Thematic Tailwinds and Headwinds Drive February Retail Sales 

Thematic Tailwinds and Headwinds Drive February Retail Sales 

This morning the US Department of Commerce published its February Retail Sales report, which was in line with expectations growing 0.1 percent compared to January. This report is always an interesting read due in part to the fact that we can look at the data a number of ways — month over month, year over year, and three-month comparisons on a trailing and year over year basis. As you can imagine, this can lead to quite a bit of confusion when trying to puzzle together exactly what the investing signal is coming out of that retail report noise.

Here’s our take on it featuring the thematic lens that we hang our hat at here at Tematica . . .

February 2017 vs. January 2017

Month over month retail sales climbed by 0.1 percent, in line with expectations. The four categories that saw faster spending growth than the average were furniture (+0.7 percent), building materials (+1.8 percent), health & personal care stores (+0.7 percent) and nonstore retailers (+1.2 percent). The sequential increase in building material demand, as well as furniture, fits with the mild winter weather that led to a pickup in construction employment and a stronger than seasonal pickup in housing starts.

The continued tick higher in health & personal care stores ties with our Aging of the Population investing theme. We continue to see this category rising faster than overall retail spending as the first baby boomers turn 70 this year with another 1.5 million each year for the next 15 years. The scary part is of these baby boomers, roughly only 50 percent have saved enough for retirement, which touches on our Cash Strapped Consumer investing theme.

Finally, we once again see Nonstore retailers taking consumer wallet share in February, which comes as no surprise as Amazon and other retailers continue to expand their service offerings and geographic footprints, while other traditional brick & mortar retailers focus on growing their direct to consumer business. In short, our Connected Society investing theme continues to transform retail.

Month over month weakness was had at electronics & appliance stores, clothing, and department stores. Compared to January gasoline station sales ticked down modestly as well, which we attribute to the essentially flat gasoline prices month over month per data from AAA.

 

February 2017 vs. February 2016

Year over year February Retail Sales excluding autos and food rose 5.9 percent led by a 19.6 percent increase in gasoline station sales, a 13.0 percent increase in Nonstore retail, a 7.3 percent rise in building materials, a 7.0 percent increase at health & personal care stores. Without question, the rise in gasoline station sales reflects the year over year 18 percent increase in gas prices per AAA data, while the milder winter we discussed earlier is likely pulling demand forward in construction and housing — we’ll look for February and March housing data to confirm this. The rise in gas prices reflects OPEC oil production cuts, which serves as a reminder that oil and other energy products are part of our Scarce Resource investing theme — there is only so much to be had, and production levels dictate supply.

As far as the year over year increase in health & personal care goes, it’s the same story — the Aging of the Population as Father Time is a tough customer to beat no matter how people embrace our Fountain of Youth investing theme. Finally, and certainly no surprise is the continued increase in Nonstore retail sales. Candidly, we see no slowdown in this Connected Society shift — all we need to do is look at the evolving shopping habits of the “younger” generation.

The two big declines were had were…. no surprise….. electronic & appliance stores, which fell 6 percent year over year, and department stores, which dropped 5.6 percent compared to February 2016.  With hhgregg (HGG) closing a good portion of its stores and JC Penney (JCP) recently announcing even more store closures, the results of these two categories, which are likely feeling the heat from Amazon (AMZN) in particular and others benefiting from the Connected Society tailwind, the results from these two categories is anything but surprising.

If we look at the three month rolling average on both a sequential and year over year basis, the leaders remained the same — building materials, gasoline stations, Nonstore retail and health & personal care. Behind each of these there is a clear thematic tailwind, even construction and housing, which is has historically been a beneficiary of the rising aspect of our Rise & Fall of the Middle Class investing theme. We’ll have a better sense of that with tomorrow’s February Housing Starts and Building Permits report.

And just in case anyone was holding out hope for electronics & appliance stores and department stores, the three-month rolling averages showed continued declines on both on a sequential and year over year basis. Nothing like a thematic headwind to throw cold water on your business.

The question to us is whether we will see more M&A chatter like we saw several weeks back with Macy’s (M) and more recently with Hudson Bay (TSE:HBC) being interested in Neiman Marcus. We can understand one company picking off well-positioned assets that might improve its overall customer mix, but we suspect there will be a number of companies left standing with no dance partners when this game of retail musical chairs is over. That means more companies going the way of Wet Seal than not, which means pain for mall REIT companies like Simon Property Group (SPG).

Before we go, we have to mention the piece by Tematica’s Chief Macro Strategist, better known on the Cocktail Investing Podcast as the High Priestess of Global Macro, Lenore Hawkins, which  called out the lack of weekly, year over year wage growth in February. Paired with higher prices, such as gas prices and others, that are leading to a pickup in reported inflation, it tells us our Cash-strapped Consumer investing theme has more room to go.

Hat tip to Lenore Hawkins, who added her special sauce and insights to this viewpoint. 

Note: Tematica’s subscription trading service, Tematica Pro, has a short position in SPG shares.