We've learned a lot about retail since Macy's (M) guided lower -- most of it wrong.
We chose to extrapolate what may turn out to be the weakest model of them all on top of other models that are working and lump them all into a trough that simply isn't accurate.
The supposition was pretty simple. As Jeff Gennette, the CEO of Macy's, laid out, there simply wasn't good follow through after Black Friday at the venerable chain.
When he cut numbers, he cited specific categories of weakness: women's sportswear, fashion jewelry (not fine jewelry, which did well) fashion watches and cosmetics. That's enough categories to make us think that the consumer truly has slowed down in her spending.
I think that's true to some extent, because consumer confidence eroded after Black Friday for a host of reasons -- everything from a slumping stock market to the government shutdown, which, while historically not that significant longer term for the stock market, does create negative sentiment out of nowhere.
But we now have a lot more evidence of what went on in retail in the week since Macy's reported. Let's pick apart the categories.
First, we now know after yesterday's spectacular LuluLemon (LULU) numbers that the customer is buying sportswear, she's just not buying it at Macy's. Mid-teens comparable-store sales on top of high sales growth the year before shows me that Lulu's unique combination of strong online and experiential stores, with people connected with the merchandise, is a winning formula. As someone who has sampled a great number of Lulu stores, because I have been so enamored of the company's mindfulness ethos, I can safely say that sportswear's a red-hot category and Lulu has the merchandise women want.
I have no explanation for the weakness in sleepwear. But I feel confident now that the fashion watch category is being obliterated by the Apple watch, which was supply constrained for Christmas, something that's lost in all of the hoopla about how horrible Apple's phones allegedly are. I think Apple's doing a lot to make the watch be more fashion forward.
The Hermes collaboration is real, and worth following. Apple is becoming a real force here -- and with 1.2 billion watches sold every year, this is the new device that is being underestimated, following up on a long list of other underestimated innovations.
I don't have a line on fashion jewelry declines, but I can tell you that the cosmetics business has suffered from what happened to electronic hardware business: price discovery. Women are going to Amazon (AMZN) and Ulta Beauty (ULTA) , where they know they will find the cheapest prices for even the best cosmetics -- they have all pretty much caved to Ulta, which means they have caved to Amazon -- given that few companies can resist either outlet because prestige cosmetics are now sold in the same outlets as mass. This is a big change that was unheard-of even three years ago.
So that's enough to make me think that Macy's has unique issues not yet addressed, especially when you overlay the positive pre-announcement made by PVH Corp (PVH) , which with Tommy Hilfiger and Calvin Klein, represents a ton of aisle space at the store. The fault doesn't seem to be with the consumer, but with Macy's itself.
I still don't understand how come Target (TGT) and Kohl's (KSS) got killed -- other than that they reported non-blowout numbers on the same day that Macy's truly did disappoint. I guess people expected stupendous numbers because of unemployment and it just didn't happen. That said, I think both Kohl's and Target are being hurt by a resurgent Walmart (WMT) , which is coming in under them in many cases.
Still, they have reasons for being: Kohl's has unique brand pricing and Target's got great house brands. And let's not forget that Kohl's guided up -- not down, like Macy's -- even as at one point it was down almost as much as Macy's stock on a percentage basis.
What else could be a deciding factor in store visits? Here's one. Fun. We keep hearing "experiential" and we try to draw a conclusion about what that means. I think consumers want fun and they want it in a bargain, non-extravagant setting, like the one you have at Dave & Buster's (PLAY) , which announced terrific sales last night. Liquor, cheap toys and games, bar and game gallery? What's not to like?
To me, the real takeaway from the Macy's madness is that you have to go category by category -- and when you do so, you realize that retail isn't a losing ETF, it's a sector with winners AND losers. Knowing the distinction is the difference to being blind to opportunity and exploiting it -- and the latter is where the money is made.