For Retailers, Where's the Olympic Gold?

London Spectators at Olympics
Getty Images
London Spectators at Olympics

With the Jubilee followed by the Olympics it is good to be British this year. So does that must mean its good to be a retailer in the U.K. this year?

Not exactly.

While retailers had high hopes for the Jubilee Celebration \(Deckers even called out on first-quarter conference call\) results did not deliver. According to the BRC, retail sales in June increased 1.3 percent versus estimates of more than 2 percent. Certainly the dismal weather, which started early in June and continued until just before the launch of the Olympics, has not been on Team Great Britain’s side.

The good news is the sun came out in time for the Opening Ceremony and we can now put away our ski jackets just in time for August. The bad news is sunshine will not save retail. And despite many retailers’ early hopes, the Olympics probably won't either.

While the shiny new Westfield Stratford Mall adjacent to the Olympic park is booming with tourists, the typically crowded shopping destinations of Oxford St, Bond Street and Regent Street seem downright quiet. That is probably because most sane Londoners high-tailed it out of town as they anticipated gridlock and nightmarish tube rides to work. In reality central London is actually quite manageable.

So what happened to the big Olympic retail spend? For the high-end luxury shops London is a spending destination for Chinese, Russian and Middle Eastern visitors. Many flagship stores derive 30 percent or more of their business from Asia alone. Problem is with the anticipation of chaos the big spenders may not have shown up at all. That combined with locals in hiding does not paint a pretty picture for even the sunny part of July.

If you head out to the Westfield Stratford Mall you might see a different but picture but don’t be fooled. The 1.9-million square feet of retailers, casino, champagne bars, restaurants, nail salons would make an American feel right at home. And the best part for the mall adjacent to the Olympic Park? Seventy-five percent of ticket holders have to walk through it to get to their events. Brilliant!

Well, brilliant for now, anyway. Tourists and athletes are spending up a storm. For some athletes, retail therapy is a way to take their minds off the weight of a country sitting on their shoulders. But the question is when the tourists go away will the retail traffic stay? That largely depends on the development project in the surrounding area.

But for the reality behind the Olympics one time effect, retail seems still very much under pressure in the U.K. During June-July London clearance sales, if you were not discounting 30 percent to 50 percent, you were not in the game. Some of the most aggressive promotions were at the Gap, which went from 50-percent off to 60-percent off to 75-percent off within one week.

Guess also had no shortage of 30-percent to 50-percent off—I counted 400 bags in one store in London. While Coach disappointed in the U.S. Tuesday, and the stock plunged, they called the U.K. "gaining traction." I don’t know what the definition of traction is, but I counted more than 50 bags that were 50-percent off and all trenches were 50-percent off (and yes, it rained the last two months).

Moving on to the high-end KORS had some great buys at more than 40-percent off. In some cases, sale items in London were cheaper than in the U.S. Direct competitors Anya Hindmarch, Mulberry, and to lesser extent, Furla were priced at between 30 percent and 50 percent off.

And don’t forget Abercrombie . Yes, we know Europe has been REALLY bad (company talking negative mid-teens). But, can you imagine how bad it is when the retailer is the only one NOT participating in the “sales.” So much for trying to keep up with the Joneses.

Coach pointed out the promotional environment in the U.S., but things seem even more promotional across the pond.

The bottom line is: If you are at the games, don’t be fooled by the shopping bags. Remember the saying, "if you build it, they will come?" In this case, it is true because you have no other choice, if you want to see the Olympics.

Stacey Widlitz is the President of SW Retail Advisors Inc. She has worked at UBS, SG Cowen, Fulcrum Partners and in 2005 was one of three analysts to launch the Research Department at Pali Capital, where she covered Retail and Home Video for 5 years. Follow Stacey on Twitter @StaceyRetail.