[WEEKLY RETAIL REPORT ARCHIVES]

San Francisco, CA (March 13, 1997) -- Surprising strong retail sales figures for the two months of the year are out, with many retailers meeting or exceeding their robust sales plans. The LJR Redbook Research latest indicator shows sales up 1.1% in the first week of March from the first week in February. Comparing that first week to the numbers one year ago, the sales were up 8.6% in 1997.

Two worthy short takes this week in retail. First, WAL-MART <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WMT)") else Response.Write("(NYSE: WMT)") end if %> was added the the Dow Industrials this week. This move was done to update the Dow and to reflect the economy, according to the Wall Street Journal. In total, there were eight stocks that either were shifted on or off the Dow. It was noted by some analysts that any price moves based on changes should be short-lived, because all eight stocks were very liquid and widely traded. However the psychology of the prestige, in either being removed, or added, has yet to be seen.

The on-again, off-again marriage plans between OFFICE DEPOT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ODP)") else Response.Write("(NYSE: ODP)") end if %> and STAPLES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SPLS)") else Response.Write("(Nasdaq: SPLS)") end if %> had a setback when the preacher from the Federal Trade Commission said he wouldn't officiate. That announcement came Monday as the FTC rejected the proposed merger that contained a dowry of $4 billion. Both companies said they "will vigorously contest the FTC's decision." In making the ruling, William Baer, director of the FTC's Bureau of Competition (and we pay taxes to that) stated that in communities where both stores exist, prices are lower. His agency contends that competition would be reduced or eliminated and consumers will have to pay higher prices.

In looking at this ruling for this and other potential mergers, the larger issue is whether or not in the context of all the available outlets where consumers can buy office supplies (including stationery stores, mail order catalogues, warehouse clubs and discount chains), the 5-6% combined share of the $185 billion office-products industry merger would result in the true demise of competition.

Perhaps, if Staples stores would be split up and sold between Office Depot and OFFICEMAX <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OMX)") else Response.Write("(NYSE: OMX)") end if %>, the FTC might look at this deal more favorably. Up to the date, there has been no word or offers made from Officemax or any other financial firms.

Fickle Fashions

In all aspects of retail, expectations of merchandise, service, pricing, and quality are what keeps loyal customers returning to stores. In the past, one retailer was envied by competitors as it boasted a loyalty rating highest in the sector. But in the last few quarters, this major retailer has been struggling as its customer base seemed confused and perplexed. NORDSTROMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NOBE)") else Response.Write("(NASDAQ: NOBE)") end if %> reported lower than expected earnings for the fourth quarter, citing disappointing holiday sales and dampened post-holiday sales because of severe weather. Earnings for the Seattle-based chain fell 21% to $42.8 million or $0.53 a share, from $54.1 million or $0.67 a share, in the same period the year before. The upscale department-store retailer's net income was $0.11 a share less than a consensus estimate of analysts surveyed by First Call. Earnings have been flat or down the last eight quarters, while the industry as a whole has rebounded. Some analysts believe that a strong push from FEDERATED'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FD)") else Response.Write("(NYSE: FD)") end if %> Macy's and Bloomingdales may have taken shoppers and their wallets away. In a recent article in Investors Business Daily, marketing consultant Jack Trout said the store was suffering from the public's perception of the store's image. "When a company begins to undo what it is, it really causes confusion." he said, "And in marketing, confusion is the enemy that kills you."

In recent months, Nordstroms, known for its high-priced apparel and top-notch service, has been hurt by marketing to a wider audience. By using phrases like "we won't be undersold" and other such language Nordstroms has confused shoppers. In the San Francisco Nordstroms, I was recently disappointed at the merchandise the store was carrying. In the past I remembered it being more upscale than Macy's and a notch below Neiman Marcus. It did not appear that way to me anymore. Nordstroms closed at the end of today trading at $38 a share.

It will be interesting to follow Martha Stewart, the queen of the hot-glue gun, and kitchen-cook extraordinare, as she begins to market a line of home-related merchandise for KMART <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KM)") else Response.Write("(NYSE: KM)") end if %>. A thrilled Kmart announced March 5 net income from continuing operations of $231 million or $0.48 a share for the full year ended January 29,1997, compared to a net loss of $80 million, or $0.18 a share, for the full year ended January 31, 1996.

President and CEO Floyd Hall said, "One year ago we pledged a major financial and strategic restructuring of the company, and we indicated the financial decline of Kmart had bottomed and that we would return the company to profitability in 1996." Hall attributed the best earnings to tremendous inroads in reducing costs, sales performance and gross margin rate improvements. It appears that Kmart has decided to focus on marketing and operational initiatives to increase sales, and to improve assortments, store appearance and customer service. In bringing in Martha Stewart and her line of home-related merchandise, Kmart may be trying to expand its base of "home" shopper. However, I believe that the addition of Martha Stewart may delight Kmart's present shoppers searching for this blue-light special, but it may not attract new customers.

In addition, Kmart announced today it would significantly boost its purchasing from Asian suppliers. At present, Kmart, with about $10 billion in quarterly sales, only purchases about 10% of its merchandise from suppliers outside the U.S. and Canada. The plan is to raise that figure to 20%. This strengthening of its network of overseas purchasing should enhance its competitiveness. Shares of Kmart closed today at $12 5/8.

In the area of home-related merchandise, Kmart competes with such companies as STROUDS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STRO)") else Response.Write("(Nasdaq: STRO)") end if %> and BED, BATH, AND BEYOND <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BBBY)") else Response.Write("(Nasdaq: BBBY)") end if %>, Strouds last week saw 9.1% slower same store sales for the month of February. However, net sales for the Southern California-based company, for the 52 weeks ending March 1, 1997, were about $208.9 million, compared with about $190.3 million for the 53-week period last year. Nationwide Bed, Bath, and Beyond saw increases in same stores sales in February. Net sales for fiscal 1996 were approximately $832 million, compared with $601 million in sales for fiscal 1995. That is an increase in approximately 36.9%. Tucker Anthony Inc. raised its investment rating to buy, from hold, on February 19. Tucker, in a research note, stated that shares were off about 21% since it downgraded the stock on Jan. 21 and that despite its original downgrade, the company's fundamentals were strong and a 12-month target was $32. On March 7, both Paine Webber and Prudential Securities upgraded the stock. Bed, Bath, and Beyond operates a chain of domestic merchandise including bed linens, bath accessories, and kitchen textiles. As of January 1997, the company operated 108 stores in 25 states. Of those, 28 are superstores that have merchandise and home furnishing. The company plans to open approximately 30 new superstores in fiscal 1997. The stock closed today at $27, close to its 52-week high of $31 3/4.

Clearance Rack

Speaking of being something one is not... in February of 1996, MOSSIMO INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MGX)") else Response.Write("(NYSE: MGX)") end if %> went public with all the fanfare that one would expect from a new hip retailer, worn on the weekends by Wall Street. The stock went from $25 to $50 1/8 by June 3, 1996. The type of merchandise manufactured and marketed were mainly inexpensive T-shirts, shorts, sweatshirts, jeans, knit and woven shirts, and outerwear that appeal to teenagers and Generation Xers. However, with the infusion of money, Mr. Mossimo quickly expanded and began to design and manufacture $800 expensive Italian suits under the Mossimo label. Rumors abounded on 7th Avenue in New York that he wanted to be the next Giorgio Armani, well known for expensive Italian suits, ties, and other accessories. Mossimo tried to take a name that was known for casual wear and upscale it. Generally, the formula for success has been to have an expensive name and then market T-shirts and caps (like Emporio Armani, Calvin Klein Sport, and DKNY) for people who can't afford the top of the line but want to have the status. Mossimo stock in the last few months has tumbled and today closed at $8 3/8. In the meantime, other companies are competing with Mossimo on the lower end and huring the company's sales. The company's products are distributed to approximately 770 department-store specialty retailers and sportswear-store account across the United States. Only time will tell if Mossimo can capture lost ground.

Tale of Two IPO's

Two retail companies which went public in 1996 reported the financial results for the fourth quarter and year end. LOEHMAN'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LOEH)") else Response.Write("(NASDAQ: LOEH)") end if %>, whose fiscal year ended February 1, l997, reported a pro forma net income for the fourth quarter increase to $1.3 million or $0.14 cents a share, compared to a pro forma net loss of $0.5 million, or $.05 per share in fiscal 1995. The pro forma operating income increased 120% to $4.9 million, representing 4.5% of sales, versus $2.2 million representing 2.2% of sales in the fourth quarter of the prior year. The company, which went public on May 10, 1996, stated it was pleased with significant accomplishments, including the strengthening of the company's financial position and the opening of seven large-format stores. Loehmann's is a specialty retailer of designer and name-brand women's fashion apparel, accessories, and shoes at costs that are typically 25% to 50% less than department store prices. The company currently operates 73 stores in major metropolitan markets located in 23 states and to show my age, I can remember when the one in Brooklyn didn't take credit cards, have shoes, or a return policy.

DESIGNER HOLDING LTD. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DSH)") else Response.Write("(NYSE: DSH)") end if %>. announced March 12 that the company's 1996 pro forma net income, before start-up costs and interest expense from a purchase price accounting adjustment related to the terminated license agreement with DONNA KARAN INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DK)") else Response.Write("(NYSE: DK)") end if %>, increased 56% to $31 million, or $0.96 cents a share, compared to $19.9 million or $0.62 cents in 1995. Pro forma sales for 1996 reached $480.4 million, a 37.9% increase, versus $348.4 million in the comparable period last year. Right now this company is a good position The main product that it is manufacturing and marketing is very desired and has a following among men, women and especially young teenage girls. In addition, as the company increases its share of the jeanswear market, it has introduced a shop-in-a-shop concept in many department stores, where all the line is shown in one area. They company is on track to open an additional 200-250 shops like this in 1997. Designer Holdings develops designer sportswear under the Calvin Klein Jeans, CK/Calvin Klein Jeans, and CK/Calvin Klein Jeans Khakis labels. The company's products include jeans, khakis, knit and woven tops and bottoms, T-shirts, leather and denim jackets, and related accessories and is distributed through a broad range of department stores and specialty stores. The stock closed at $13 1/8.

Each week, in this weekly update, I will be examining all aspects of the retail industry. Remember your plastic -- "We never leave Fooldom without it."