And American Apparel shuts down.
This time a year ago, Tiffany & Co. cut its full-year forecast after reporting a drop in holiday sales. It blamed sluggish tourist spending and the strong dollar. Rinse and repeat. But today, it changed the culprit to the brouhaha around Trump Tower, the neighbor of its flagship Fifth Avenue store, where sales over the two-month holiday period plunged 14%.
In its holiday sales update, Tiffany said that in in the Americas, which represent half of its global business, total sales fell 4% year-over-year, to $483 million, over the holiday period, and comparable store sales also fell 4%. The drop in sales was due to “local customer spending,” it said. So this time, it didn’t blame the hapless tourists.
And the ongoing decline in sales in the US was “exacerbated” by the 14% plunge at its flagship store on Fifth Avenue. It attributed this plunge “at least partly” to the “traffic disruptions” around Trump Tower.
These “traffic disruptions,” with the President-Elect holding court next door at Trump Tower, have been a problem not just for Tiffany but also for other retailers nearby. In addition to the enormous security efforts – the barricades, dump trucks, checkpoints, and armed-to-the-teeth police around Trump Tower – there have been protesters, waves of tourists, and an army of journalists that all might discourage some well-heeled shoppers from entering or even getting near Tiffany.
Alas, Tiffany’s flagship store accounts for less than 10% of global sales, the company said in its third-quarter earnings report last November, when it already warned about “election-related activity.” CFO Mark Erceg said at the time that it had caused “some minor disruptions to pedestrian foot traffic at the store.”
Globally, Tiffany’s holiday business was a mixed bag: In Europe, sales during the two months plunged 10% year-over-year, and comparable store sales plunged 11%. Eliminating currency fluctuations, total sales were flat and comparable store sales fell 4%. In Asia Pacific, sales looked better, though comparable stores sales also dropped. In Japan sales were hot, with comparable store sales up 12% – “partly offset by lower wholesale sales.” So global sales inched up 1%.
And in this tough brick-and-mortar retail environment in the US, another retail chain joined the growing list of retailer bankruptcies, while another company that already filed, is shuttering all its stores and manufacturing operations.
Women’s apparel chain Limited Stores announced today that it filed for Chapter 11 bankruptcy. On Friday it had said that it would shutter all its 250 stores, effective Sunday.
This is another private equity story. PE firm Sun Capital Partners bought a majority stake in The Limited in 2007, during the grand wave of leveraged buyouts (LBO), including those of retailers. These PE firms that were gobbling up retailers and loading them up with debt were all hoping to make a killing on the new American prosperity and then sell those chains in IPOs down the road. But that plan has collapsed. The Financial Crisis intervened, and they’d failed to consider the devastating impact of online sales on brick-and-mortar stores.
So Sun Capital bought the remainder of The Limited in 2010. And since then, the environment for brick-and-mortar retailers, particularly apparel retailers, has only gotten worse.
In a letter to investors on Friday, Sun Capital said that Limited Stores is evaluating strategic alternatives for its remaining e-commerce business and intellectual property.
Yesterday, there was another hiccup in the industry: American Apparel, which had filed for Chapter 11 bankruptcy in November — after having just emerged from its first bankruptcy filed in October 2015 — confirmed rumors that it had started to lay off 2,400 workers in Southern California.
The rights to the American Apparel brand were acquired for $88 million by Canadian apparel maker Gildan Activewear in a bankruptcy auction last week. But it then withdrew its plan to acquire some of the manufacturing operations. Nearly 90% of Gildan’s 42,000 employees work in cheap-labor locations in the Caribbean and Central America. It only manufactures socks in the US.
That’s the end of American Apparel manufacturing in the US.
No one was interested in buying the 110 American Apparel retail stores, and they’re now being shuttered. So the second bankruptcy filing was the charm: outside of the brand, now owned by a Canadian company, there will be little left over.
Retail sales over the holidays have been tough for brick-and-mortar all around, despite soaring consumer confidence, and pundits are being sent back to the drawing board. Read… Surge in Consumer Confidence Turns to “Dismal” Retail Sales beyond Autos, Gasoline
Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.
Classic Metal Roofing Systems, our sponsor, manufactures beautiful metal shingles:
- A variety of resin-based finishes
- Deep grooves for a high-end natural look
- Maintenance free – will not rust, crack, or rot
- Resists streaking and staining