Sizing Up Black Friday and the Retail Crime Wave

Depending on who you ask, Black Friday traffic was either awesome or terrible... As with most things, it mostly depends on your point of reference. Consider these headlines: Shoppers' Store Visits Rose 48% From 2020 – Bloomberg, Nov. 26, 2021 Black Friday shopping in stores drops 28% from pre-pandemic levels – CNBC, Nov. 27, 2021 […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily] Sizing Up Black Friday and the Retail Crime Wave By Berna Barshay Depending on who you ask, Black Friday traffic was either awesome or terrible... As with most things, it mostly depends on your point of reference. Consider these headlines: Shoppers' Store Visits Rose 48% From 2020 – Bloomberg, Nov. 26, 2021 Black Friday shopping in stores drops 28% from pre-pandemic levels – CNBC, Nov. 27, 2021 Which one is right? They both are. Traffic to retail stores on the once all-important Black Friday shopping holiday made a dramatic leap from last year's pandemic-depressed levels, when many shoppers were wary of the mall because of safety concerns. But that doesn't mean that plenty of people didn't stay away... A 28% dip from pre-pandemic traffic levels is still significant. While a small group of people may have skipped the mall because of pandemic fears, people likely stayed home for plenty of other reasons. A couple of them are potentially concerning in the bigger picture, and they predate the pandemic... First is the convenience of online shopping. As e-commerce continues to grow, it becomes a bigger and bigger headwind to brick-and-mortar retail traffic. That leads to the second secular, long-term concern with physical retail: Overall traffic to enclosed malls has been in secular decline for more than five years, which impacts Black Friday (as well as every other day). But before anyone panics over the potentially accelerating rate of traffic decline, remember that this year is a little different... After so much messaging about risks to the supply chain, many consumers started their holiday shopping early this year. Warned about shortages and shallower discounts than in the past, many likely didn't wait until Black Friday... some might have even finished their shopping by the big day. According to a survey from the National Retail Federation ("NRF"), 61% of consumers already started buying gifts before Thanksgiving. E-commerce undoubtedly continues to take a bite out of the mall year-round, and Black Friday is no exception. And some omnichannel retailers are doing their physical stores no favors when they promote more aggressively online than in their physical stores. I noticed, for example, that mall retailer The Children's Place (PLCE) was offering 60% off online for items that were only 50% off in the store. I'm seeing less of this than in past years, but it still doesn't make much intuitive sense to me, especially in an age of free shipping. The NRF expects holiday sales in November and December to be up between 8.5% and 10.5% this year, and total around $850 billion, which would set a record for year-over-year growth. Supply chain worries and a lingering pandemic are no match for a consumer that is in good financial shape and looking to make up for lost time after the muted 2020 holiday season. Other Black Friday takeaways... No more doorbusters. In order to promote social distancing, retailers last year dumped the early morning deals that require bargain seekers to get up while it is still dark out and crowd into stores. Grabbing early-morning doorbusters had become akin to a competitive sport, and a whole subgenre of YouTube is devoted to the shopper brawls and opening crush crowds associated with early morning on Black Friday. With a nod to continued social distancing, retailers skipped the doorbusters again. If they never come back, it's probably a win for both retailer margins and humanity as a whole. In another win for humanity, for the second year in a row, almost no retailers opened on Thanksgiving. Black Friday had crept into Thursday evening in the years before the pandemic, but last year large chains chose to give their employees a break and stay closed on Thursday. This year, retail giants Target (TGT), Walmart (WMT), and Best Buy (BBY) chose to stay closed on Thursday for the second year in a row. Target has committed to taking Thanksgiving Thursday off permanently. The change that may matter the most to retailer profits this season was that "30% is the new 40%" when it came to Black Friday "percentage off the whole store" deals. A tight inventory environment gave most retailers license to limit storewide promotions to 20% to 30%. For more information about what I saw out in the mall on Black Friday, including stock-specific observations, check out my Black Friday Twitter thread [here](. Elsewhere in the retail world, robberies have become a growing trend... The Saturday night before Thanksgiving, more than 80 people robbed the Nordstrom (JWN) store at Broadway Plaza, an upscale outdoor mall located in Walnut Creek, California. The coordinated attack on the department store lasted just minutes, as thieves wearing ski masks and armed with crowbars made off with thousands of dollars in merchandise. The attack took place around 9 p.m., just as the store was getting set to close. The prior evening, a series of break-ins at luxury stores took place at the nearby Union Square shopping district in San Francisco. Among the stores hit were luxury department store Bloomingdale's, a division of Macy's (M), along with standalone luxury brand shops including LVMH's (MC.PA) Louis Vuitton and Fendi, Burberry (BRBY.L), and Hermès (RMS.PA). Several cannabis dispensaries in the area were also hit. On the same night as the Walnut Creek robbery, burglars descended on the Louis Vuitton on Rodeo Drive in Los Angeles along with a nearby branch of luxury department store Saks Fifth Avenue. Would-be robbers used sledgehammers to break windows but failed to gain entry into either store. The Chicago location of luxury department store Neiman Marcus was also attacked with similar methods that same weekend. [After boarding up in anticipation of politically motivated attacks that never happened]( in the wake of the 2020 election, stores are again finding themselves boarded up, but this time as the result of attacks and not as a preventative measure. Here's what the Union Square Louis Vuitton looked like heading into Black Friday... Source: Associated Press One retailer was out talking about the crime wave last week... I was curious to see if the topic of organized retail crime would come up on the Nordstrom earnings call last week, coming just days after the dramatic attack on the Walnut Creek location. But after registering a disappointing set of results, analysts had more important things that they wanted management to address. The topic did come up on last week's earnings call for electronics retailer Best Buy. CEO Corie Barry was asked to elaborate on a prepared comment about shrink being a headwind to gross margin. In retail, shrink refers to losses from all theft, but most commonly from shoplifting by customers or employees. I can't remember armed robbery ever coming into the equation before. As Barry commented... I think you've probably seen in the media that across retail, we are definitely seeing more and more, particularly organized retail crime and incidents of shrink in our locations. And I think you've heard other retailers talk about it and we certainly have seen it as well. I want to start with our priority has always been and will remain the safety of our people, whether that's the pandemic, whether that is unruly customers, whether that is outright theft, which is a great deal of what we're seeing right now. And this is a real issue that hurts and scares real people. We are doing a number of things to protect our people and our customers... As we talked about in the prepared remarks, we're finding ways where we can lock up product and still make that a good customer experience, in some instances we're hiring security... This is traumatizing for our associates and is unacceptable. We're doing everything we can to try to create a safe as possible environment. As a financial headwind, the "smash-and-grab" wave of retail robberies is unlikely to leave much of a mark. These losses add up to a fraction of a percent of sales and their impact on realized product gross margins is minimal. The crime wave is not totally without risk to retailers, however. [Labor shortages continue to plague the retail sector](. Retail jobs are stressful and don't pay particularly well... and they only got more stressful during the pandemic. Many retail workers are bolting from the industry at their first opportunity. While every retailer tells employees to stand down and not engage in these situations and leave it to law enforcement... Best Buy's Barry is right that experiencing such a scene at work is traumatizing. And it's another reason to quit – when you have the option. --------------------------------------------------------------- Recommended Links: [Empire's first-ever Black Friday deal]( The "Ultimate Black Friday Deal" is now officially live. 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When you sign up for an account with the Rakuten website and app, it monitors your browser and allows you to sign up for cash back rebates with various retailers. Cyber Monday offers some of the biggest cash back offers of the year, and you can layer them with other promotions that the stores themselves are offering. Check out all the stores that are 20% cash back, just for today... Source: Rakuten Other popular retailers and brands are participating, including Urban Outfitters (URBN), Signet's (SIG) Kay Jewelers, GameStop (GME), Estée Lauder's (EL) Clinique, Macy's (M) bluemercury, Toms, and Bandier. Many popular retailers and brands are also offering 15% cash back today, including American Eagle Outfitters (AEO), Bloomingdale's, Disney (DIS), Ulta Beauty (ULTA), V.F. Corp's (VFC) The North Face, Capri's (CPRI) Michael Kors, Levi Strauss (LEVI), Foot Locker (FL), JD Sports' (JD.L) Finish Line, 1-800 Contacts, Puma (PUM.DE), and Signet's Zales. In the mailbag, a salad expert writes in agreeing with my take on Sweetgreen (SG) shares... Did you go shopping on Black Friday? If so, please write in with your observations! Have you finished your holiday shopping? Will you be participating in Cyber Monday today? What are you hunting for? Anyone used Rakuten before? Share your thoughts in an e-mail by clicking [here](mailto:feedback@empirefinancialresearch.com?subject=Feedback%20for%20Berna). "Hi Berna, [regarding] Sweetgreen "As the former owner of Hale and Hearty Soups (which also did a brisk business in tossed to order salads), I must congratulate you on your excellent analysis. You touched on the most critical issues I would have covered in a write up. I always slightly wince when I order from Sweetgreen since it's noticeably more than lunch from Pret a Manger, or Hale and Hearty, or Dig Inn, or many other good quality places. "I seriously question how well the concept will resonate in middle America. Salads are also particularly labor intensive, which is a real challenge today. "I read in the Wall Street Journal that its store margins in 2019 were 16%. These are solid but not noteworthy. I believe Chipotle (CMG) is mid 20s (which is exceptional) and I'd bet Starbucks (SBUX) are over 20. Of course, it's a fine business but its valuation is totally absurd, which is exactly what I thought of Shake Shack (SHAK) after its IPO. I don't recall what multiple of sales Starbucks traded at when it went public, but I'd bet not more than 10-15% of what Sweetgreen is valued at today! "I was saying to my wife last night that the investment I was most certain right now was a winner was shorting SG shares. I hate shorting because I look for long term multi-bagger investments and because the tax treatment is bad (plus there is always the possibility of meme stock craziness), but I believe its share price collapse is as certain as any investment prediction that can be made today. "Your daily emails are consistently excellent, BTW." – Simon J. Berna comment: Thanks for the kind words and for writing in, Simon. I love it when readers who are industry experts weigh in with commentary from their years of experience. I took a look and the year it went public (1992), Starbucks shares traded at around 4 times sales, so about a quarter of the valuation of Sweetgreen when I wrote the piece. So your estimate was directionally very accurate. SG shares are down about 9% since I wrote about them... so it's trading at "only" 13 times sales now, versus 17 times before. I would contend that coffee is a much bigger addressable market than salads, and Starbucks' margins are structurally higher than Sweetgreen's will ever be for a variety of reasons, including lower ingredient costs and a smaller footprint, leading to higher sales per square foot and more leverage on rent costs. Regards, Berna Barshay November 29, 2021 If someone forwarded you this e-mail and you would like to be added to my e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2021 Empire Financial Research. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from Empire Financial Research, 601 Lexington Ave., 20th Floor, New York, NY 10022 [www.empirefinancialresearch.com.]( You received this e-mail because you are subscribed to Empire Financial Daily. [Unsubscribe from all future e-mails](