By Jharonne Martis
Demand for the latest fashion trends is always strong in the weeks leading up to Easter, a time when retailers are still selling the season's must-have Spring items at full price. Easter Sunday this year is April 4. The fact that consumers still appear to be willing to buy the latest fashion items now rather than waiting for a discount later, despite being mostly at home during the Covid-19 pandemic, is an encouraging sign for the retail industry.
Easter is one of the largest retail buying holidays. In addition to the traditional Easter eggs and holiday-related groceries, the end of winter and the arrival of warmer weather make consumers eager to update their closets and acquire new clothes that reflect the latest styles before gathering for the holidays with family and friends.
The situation bodes well for the economy since stimulus checks just arrived in people's bank accounts, and consumers are spending despite the pandemic and other headwinds. Easter is one time of year that consumers generally accept paying full price. There is a sense of spring freshness and customers want the latest looks.
To analyze what consumers are buying, we looked at the data for the four weeks leading into Easter 2021 and then identified which categories saw items sold-out. For this, Refinitiv partnered with StyleSage Co., which analyzes retailers, brands, online trends and products across the globe to track the average discount percentage and how much of the retail assortment is on sale and selling out going into the Easter holiday week.
Here are some highlights as we head into this year's Easter holiday season:
- The current average promotional discount for online stores has dropped below the 2020 pandemic level. This suggests that retailers have become less promotional online in 2021.
- Discounts have been trending downwards for most retailers with the exception of mid-tier department stores, where discounts have been trending up.
- March's weather, significantly warmer than usual throughout much of the United States, boosted pent-up demand for the spring must-have clothing items early in the season.
- As a result, skirts have been the number one item flying off the shelves (Exhibit 3). The other sold-out items include jumpsuits, dresses, jackets and blazers, which have sold out online at Mango, H&M, Forever 21, American Eagle.
- March included spring break when teenagers also flocked online to stores like American Eagle. As a result, our proprietary StarMine SmartEstimate score shows that this teen retailer is likely to post earnings for the first quarter of 2021 that are higher than the current consensus estimate.
- The next best performing sector includes footwear, which is propelling sales at retailers where apparel is the main focus.
- Within the beauty category, high-end shaving products are selling out including at Nordstrom (JWN) and Neiman Marcus (NMG-OLD).
- Consumers are also buying kitchen appliances, followed by outdoor/patio merchandise. This is benefitting Target (TGT), Costco (COST), and Kohl's (KSS).
- All three retailers are expected to see robust Q1 same store sales growth of 7.5%, 12.3%, 52.0%, respectively.
- Moreover, the StarMine data also show that a few names are likely to beat their Q1 2021 earnings estimates and post a positive surprises, including Bed Bath & Beyond (BBBY), and Williams-Sonoma (WSM).
The current average promotional discount for online stores is 34.2% and has dropped below the 2020 pandemic level of 41.2% and below the 2019 pre-pandemic level of 42.2% Exhibit 1. This suggests that retailers have become less promotional online in 2021.
Exhibit 1: U.S. Average Promotional Discount at Online Stores
Source: StyleSage Co.
Digging deeper into the data, discounts have been trending downwards for most retailers including specialty and premium sectors since December (Exhibit 2). The discount penetration (how much of the assortment is on sale) has gone down at these retailers with the exception of mid-tier department stores, where discounts have been trending up. This group has been struggling for some time, even before the pandemic, and has become more promotional in order to move inventory.
Exhibit 2: Discount Penetration for Specialty, Premium and Mid-Tier Sectors
Source: StyleSage Co.
Consumers have been conditioned to open their wallets if there's a discount. Despite this, there are items flying off the shelves at full price. This bodes well for margin improvement for some retailers.
March's weather, significantly warmer than usual throughout much of the United States, boosted pent-up demand for the spring must-have clothing items early in the season and sent online retail traffic higher throughout the month.
As a result, skirts have been the number one item flying off the shelves (Exhibit 3). On average, 8.4% of skirt products sold out over the past four weeks, with as much as 10% between the weeks of March 7 - March 21. The other sold-out items include jumpsuits, dresses, jackets and blazers, which have sold out online at Mango, H&M, Forever 21, American Eagle.
Exhibit 3: Percentage of products sold out on average: February 28 - March 21
Source: StyleSage Co.
March included spring break when teenagers also flocked online to stores such as American Eagle. As a result, our proprietary StarMine SmartEstimate score shows that American Eagle is likely to post earnings for the first quarter of 2021 that are higher than the current consensus estimate (Exhibit 4).
The SmartEstimate is a weighted average of analyst estimates, with more weight given to more recent estimates and more accurate analysts. Our studies have shown that when the SmartEstimate differs from the consensus (I/B/E/S mean) by more than 2%, the company is likely to post subsequent earnings surprises directionally correct 70% of the time. This percentage difference is referred to as Predicted Surprise (PS%).
For Q1, the SmartEstimate data shows investors can expect positive surprises from American Eagle. The teen retailer currently has an EPS mean forecast of $0.23 a share. However, there's a five-star rated analyst with a very accurate rating that published a Bold Estimate, which is different (in this case higher) than the consensus estimate. The analyst expects American Eagle to report earnings of $0.36 a share, above the mean.
Exhibit 4. StarMine SmartEstimate Q1 2021
Source: Refinitiv Eikon
As per the StyleSage data, the next best-performing sector includes footwear. What's interesting is that across the board, footwear is boosting sales at various specialty stores where apparel is the focus, and footwear is typically a smaller footprint in terms of assortment/product count. Those stores are seeing the highest rates of sold-out product compared with department stores. Meanwhile, within the beauty category, high-end shaving products are selling out, including at Nordstrom and Neiman Marcus.
Finally, when it comes to the home sector, consumers are also buying kitchen appliances, followed by outdoor/patio merchandise. In addition to the usual home-improvement winners, other names benefiting from this trend include Target, Costco, and Kohl's.
All three retailers are expected to see robust Q1 same store sales growth of 7.5%, 12.3%, 52.0%, respectively. Moreover, the StarMine data also shows that Kohl's is likely to beat its Q1 2021 earnings estimates and post a positive surprise. Other companies likely to see a positive earnings surprises this quarter include Bed Bath & Beyond, and Williams-Sonoma.
Exhibit 5: StarMine Predicted Surprise %, Quarterly Earnings Estimate, SSS Estimate: Q1 2021
Source: Refinitiv I/B/E/S
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
