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By Brian Sozzi

My weekends at the malls in December have been rather eventful. From a marathon mall tour session in New Jersey where an absent-minded motorist almost ran me over to watching a store manager fight with an associate at Bloomingdales, the amount of fun could not be properly put into words. Seemingly upon the arrival of each mall entrance or the crossing of a store lease line, ideas have just flown from the top of my head with relative ease. I often tease our research desk that I have an advantage by covering the retail sector as I am able to touch and feel product, converse with store associates, and discretely tap into the minds of consumers by asking a few casual questions.

As the holiday season approaches the finish line, what has been the fruit of my labor? I will say this, December trends at the malls could not be mistaken for November. The online sales numbers from Coremetrics on Super Saturday were to be expected as:

  • there is an increased selection of goods online;
  • consumers continue to be comfortable with the online shopping experience; and
  • the lowest possible price could be found with a click of the mouse.

But, I can't help to have stumbled upon the same themes in my notes taken over the last two weeks...

  • Nice traffic build from the opening of the mall until early afternoon, but where were the bags? At first I thought consumers were out browsing to begin the month, hence the missing bag element. Now, I wonder, did Black Friday creep pull holiday sales into November? Moreover, with the overwhelming strength of online buying, have consumers simply stuck to budgets that although fatter than 2009, are not grossly overextended?
  • Within the disappearing bag act of December, items held in checkout lines appear to be the ones targeted by retailer promotions. Larger ticket items may have been transacted in November when promotions were stronger, with fill in visits the norm in December. And why? Well, retailers have barely budged on promotions since Black Friday according to my observations, so screaming deals aren't necessarily out there...yet.

Things I am seeing:

  • Brand extensions: One example is Michael Kors doing everything outside of food (being sarcastic here) and being in more wholesale doors (including C rated malls). Other examples include Tory Burch and Juicy Couture, with the latter selling iPad covers.
  • Product evolution: Embellished jeggings (talk about high margin!), sailor pants from Express (NYSE:EXPR), very functional coats (pockets for everything except an iPad), and embellished tops (sequins, ruffles, chunky).
  • This is anecdotal, but a pullback in retailers offering after holiday traffic driving promotions. Kohl's (NYSE:KSS) offered me $10 in Kohl's Cash to be spent after Christmas, and Wal-Mart (NYSE:WMT) had a promotion going.
  • The timed promotion, used after Christmas at Banana Republic last year, was in play on Saturday with 40% off everything until noon.
  • Great time for consumers to buy a coat or pair of pants, markdowns rather prevalent.

When all is said and done, I think we are looking at Gap (NYSE:GPS), Abercrombie & Fitch (NYSE:ANF), Macy's (NYSE:M), Williams Sonoma (NYSE:WSM), and Target (NYSE:TGT) as a few of the clear winners from holiday 2010. On the losing side, I have to include Bebe (NASDAQ:BEBE), Aeropostale (NYSE:ARO), and Hot Topic (NASDAQ:HOTT). Wal-Mart (WMT) gets the award for a three bears porridge holiday season...not too hot, not too cold.

Two names that I have taken a keen interest in studying are Ann Taylor (NYSE:ANN) and Coach (NYSE:COH), given elevated market expectations for each. Ann Taylor, it's my understanding, bought its inventory for the season with the ability to make money up to a 60% markdown rate. Promotions at Ann Taylor Loft and Ann Taylor have not attained that level since Black Friday, but I still have reservations on the quarter living up to bullish earnings forecasts. Loft has been 40% off the entire store since Black Friday, Ann Taylor 30%. This weekend, Loft moved to a 50% off all sweaters promotion and introduced a sampling of new arrivals in the front of the store, which were unappealing in my view.

Coach is an interesting one as well. The call out at full-price Coach stores and wholesale doors was an overrun of lower priced Poppy bags donning little in the way of leather and very much canvas (and many "C" logos). If traffic to full-price stores was strong, which I am hesitant to say due to my observations, moving more of these lower quality bags could be a profit boon. However, I have seen stronger product offerings from competitors in the Coach price point and healthy stock levels at wholesale...I am cautious on how the quarter has tracked domestically for Coach.

Source: Holiday Season: In With a Bang, Out With a Whimper?