Blog: Leonie BarrieCost cuts continue to race

Leonie Barrie | 9 February 2009

Following one of the weakest holiday seasons for decades, figures out last week confirmed retailers continued to struggle in January. But, it has to be said, while the numbers weren't good, they could definitely have been worse. According to the International Council of Shopping Centers, January sales fell 1.6% – which is not nearly as bad as the 2-3% drop that was forecast.

Many retailers went into the month carrying lower inventories, while for others, cost cuts over the past year have started to pay off. Others still tried their best efforts to drive demand through promotions, clearance sales and fresh merchandise for the spring season.

Winners included discounter Wal-Mart Stores, where US same-store sales rose 2.1%, as well as teen retailers Aeropostale, The Buckle and Hot Topic. Among the worst performers were Children's Place, American Eagle Outfitters, Abercrombie & Fitch and Limited Brands. But while Gap Inc saw same-store sales plunge 23% – including a 34% slump at its Old Navy chain – it still managed to please the market by lifting its profit forecast.

Attempts to strip more and more costs from retail businesses are moving at a pace, with job losses continuing to mount.

Department store retailer Macy’s is axing 7,000 jobs, cutting capital expenditure, and centralising its buying and merchandise operations as it rolls out its My Macys concept nationwide. Another 370 jobs are to go at The Talbots; Liz Claiborne is slashing 725 positions or 8% of its US workforce; and Brown Shoe is cutting its domestic workforce by 12-14%.

Retailer Hudson's Bay Company is also axing 1,000 jobs in Canada as part of plans to restructure its overall business in North America. 

Over in the UK, the face of the British high street is set to change after Icelandic investment group Baugur slipped into administration last week. The move came after talks with Landsbanki bank failed over the repayment of debts totalling an estimated GBP1bn and is likely to lead to a fire-sale of Baugur's retail interests – which include House of Fraser, Debenhams, Jane Norman, French Connection and All Saints.

Fashion retailer Zara, meanwhile, is poised to open its first stores in India after parent company Inditex signed a joint venture agreement with local operator the Tata Group. The new partnership is aiming to open its first Zara stores in 2010, in New Delhi, Mumbai and other major cities in India. The firm believes India’s increasingly fashion-conscious shoppers will make this one of its most important markets.



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