Too Many Stores, Too Many Markdowns

Prominent retail stock analyst Dana Telsey told The New York Times that “most retailers are 'overstored.' A lot of companies have reached a stage of maturation where it is not possible to achieve the same level of top-line sales growth they had in the past. Many retailers are working to make efficiencies on expenses, distribution costs and systems to enhance returns.”

Telsey, senior retail analyst at Bear, Stearns, participated in the newspaper's annual Markets Outlook in its Jan. 2, 2003, issue.

“We think 2003 will show a continuation of this sort of refinement,” Telsey said. “Overall, retailers are faced with an environment where pricing flexibility is limited and where the consumer knows that the longer he waits, the cheaper the merchandise will be. To be successful, retailers must maintain positive gross margins through consistent markups and lower sourcing costs.

“The consumer is holding up pretty well,” Telsey insisted. “Keep in mind, we have tax cuts, low interest rates and low inflation. All of which bodes well for consumer spending.”

She cited Coach as “one company that will continue to do well. By testing their products at least six months ahead of time, they are able to offer consumers just what they like. Their balance sheet is also very clean, and their store base is not saturated.”

She regarded Gap as “speculative.” “There is momentum building,” she said, “because their top-line growth is beginning to improve, albeit off a very depressed base. In addition, they have a new chief executive — Paul Pressler, formerly of Walt Disney — and an appealing new marketing campaign. The company is attracting new customers into all divisions: Gap, Banana Republic and Old Navy. All of this is breathing new life into the company.”