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Holiday Mall Crawl With Retail Analyst Brian Sozzi

He's got his list. And, he's checking it twice. He's not Santa. He's not on a buying spree. Wall Street Strategies Retail Analyst Brian Sozzi has been surfing the malls in and around the New York City metropolitan area. Sozzi, who is rated five stars by Starmine for accuracy, has been doing this every weekend this season.

Brian Sozzi
CNBC
Brian Sozzi

"There are important things that can't be found on earnings calls. I touch a lot of clothes, the more I touch, the better observations I can make," said Sozzi. "For example, Coach handbags. I must have touched hundreds if not a thousand handbags since I have been working here. By touch alone, I can tell the quality of Coach handbags is down compared to prior years."

Besides Coach, Sozzi follows major chain stores such as Macy's, Target, Kohl's, Aeropostale, Urban Outfitters, Gap, American Eagle and Ann Taylor.

I shadowed Sozzi as he hit three of the busiest malls in Bergen County, NJ on Saturday—two weeks before Christmas. The itinerary: the Garden State Plaza in Paramus, NJ, the Bergen Mall in Paramus, NJ and The Shops At Riverside in Hackensack, NJ.

10:30am ET: Garden State Plaza

The Garden State Plaza has more than 300 stores. Its anchor stores at this mall include Nordstrom, Macy's, JCPenney, Lord & Taylor, and Neiman Marcus. The mall is minutes from Manhattan and often attracts the City crowd—especially since there is no sales tax in Bergen County.

The mall opened at 8am ET and there were already shoppers leaving the mall. Even though the parking lots were full, it only took about five minutes to find a spot.

First order of business: Starbucks. With a venti ice coffee in one hand and a notebook in the other, Sozzi was ready... and kind of conspicuous looking.

"I think maybe they think I'm a store manager and they don't want to get written up," said Sozzi.

Holiday markdowns were at the top of the agenda. Sozzi was checking whether the promotions were better or worse than Black Friday and if they were in line with what investor relations was telling him. He said this is the time he hits the same stores over and over again. He wants to see the level of markdowns to check for "abnormalities."

Sozzi noted Aeropostale was selling all its merchandise at 70 percent off—a better deal than the 50 to 70 percent off on Black Friday. He wondered if there was another fourth quarter warning waiting in the wings.

Bebe was still running its Black Friday 50 percent off promotion. Sozzi said, "I don't think the assortment is showing well, and I think the company is headed towards an earnings warning for the holiday quarter."

Ann Taylor was another sticking point for Sozzi. Its Loft store was advertising 40-percent off all merchandise. He noted there was still a high level of inventory, a very clear focus on neutral palettes, not much in the way of bottoms and displayed last season's trend of chunky jewelry.

Sozzi liked what he saw at Abercrombie and Fitch. There was not much heavy discounting there or at its Hollister store. Plus, their American prep model was dressed to impress.

"More mannequins wearing on trend stuff show the potential for higher sales because complete looks are sold. American Eagle had a nice number of mannequins in the store, while Aeropostale had hardly any," said Sozzi.

In terms of traffic, Macy's and JCPenney were more crowded than the higher end department stores such as Nordstrom and Neiman Marcus. But, we saw in this Mall traffic come and go in spurts.

2:30 pm ET: The Bergen Mall, Paramus, NJ:

After going in and out of stores for nearly four hours at the Garden State Plaza, the next stop was the Bergen Mall. It is a mix of outlets and discount stores. Bloomingdale's opened its outlet there over the summer. Other tenants include a Century 21, Off Fifth, Nordstrom Rack, Gap Outlet, Target, Filene's and Whole Foods.

Just like the Garden State Plaza, the parking lot was crowded. But, cars were pulling out. There was no need to circle.

"Deals at the outlets were nothing mind blowing. There was nothing to indicate the brick and motar stores were having inventory issues," said Sozzi. "The Bloomingdale's outlet was good if you were looking for designer stuff at good prices."

Overall, Sozzi found outlet traffic continued to be solid. Since a lot of it is made for factory, this will bring these retailers holiday cheer. He did not see a ton of inventory at most outlets which indicates items at full price stores are moving.

Target had a good amount of shoppers—most of the hovering around the mobile electronics and toy areas. Sozzi wrote down discretionary areas of the store such as trim and tree and housewares saw softer traffic.

3:45 pm ET: The Shops At Riverside, Hackensack, NJ:

After almost getting backed up into by an overly aggressive driver in the parking lot outside Saks, we made it inside. Sozzi was running low on caffeine. So, our next stop was to a barista at the Starbucks in Barnes in Noble.

This shopping center is smaller than the Garden State Plaza. It features higher end stores such as Bloomingdale's and Saks. It also has Burberry, Coach and J. Crew Group.

Sozzi said he has not been impressed with the pipeline of clothing at J. Crew. The retailer in the middle of a deal to go public with private equity firms TPG and Leonard Green & Partners.

"Essentially, I think retailers have been driving increased volume year over year on lower quality merchandise, which is why we have seen strong profits from the sector this year. Expense cuts have helped also," he said.

The holiday promotion at Banana Republic was different here. At the Garden State Mall, a greeter handed out envelopes with a promotion inside. Shoppers didn't know what it was until it was opened. The Banana Republic at the Shops At Riverside had a sign advertising 25 percent off merchandise in the store.

Sozzi continued to hone in the products at the Coach store. The retailer was in the middle of a friends and family promotion offering 25 percent off an entire purchase. Just like the Coach store at the Garden State Plaza, the one at this mall did not have more traffic or selection. Sozzi said this fit in with his observations made earlier in the season.

A bright spot: the shoe departments. These areas of the stores at all three malls were "on fire."

Bottom Line:

This trip, Sozzi said, reinforced his view that the bubbly consumer sentiment may soon fall flat.

"Retail stocks have made a huge run, so have exposure to companies as a short on potential earnings letdown for the fourth quarter seems appropriate. Ann Taylor and Coach are starting to fall under this headline for me," he said. "They should still report good numbers, but whether the earnings print will match higher consensus expectations by many is open to debate."

Disclosure: Sozzi does not own or have investment relationships with the companies mentioned above.

Stephanie is Squawk Box producer and the NetNet retail correspondent. Follow her on twitter @StephLandsman

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Companies mentioned in this post

Coach

Macy's

Target

Kohl's

Aeropostale

Urban Outfitters

Gap

American Eagle

Ann Taylor

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