How’s My Handicapping?

Last November, I looked over the top 10 retailers of home textiles and gave a prediction for each.

Now that July is here, we have their final 2007 results – as seen last week in the HTT Top 50 Retailing Giants report – as well as another quarter or so of fresh results.

Time to recap, review – perhaps apologize – and move on!

Here are the comments I made last fall (with the 2006 home textiles sales figures) – followed by a new observation on each retailer.

1. Wal-Mart - $3.640 billion in 2006

It took a long time to finally hear this: “We’re seeing improvements in both home and apparel” – but hear it we did, from ceo Lee Scott on the 3Q earnings call. If depressed sales growth in home textiles has bottomed out at the Big W, then maybe Bentonville’s scorched-earth policy on margins and prices will ease just a bit – and that in turn could give other retailers a chance to test higher price points.

1. Wal-Mart - $3.810 billion in 2007

Never mind what I said about easing up on the take-no-prisoners pricing. Wal-Mart U.S.’s 2,447 supercenters and 971 discount stores (fiscal year-end unit count) are bursting with commodity goods in home, and the new Canopy program is no departure. Wal-Mart – transforming itself into “Walmart” – will fend off BBB and JCP by offering frantic consumers just enough flavor to compete with those retailers’ opening-level programs.

On the other hand, watch out for crashing Kmart and Sears. Along with surging Big Lots, Family Dollar, Anna’s Linens and other value merchants, the lower market will swamp even Wal-Mart with about $3 billion in sharply priced merchandise. There’s a fire sale going on.

2. JCPenney - $3.065 billion in 2006

“Big ticket home” products were a flop in JCP’s 3Q. Store comps hit a wall in September, and the direct side’s internet success was smothered by a clunky catalog season. Management is sour on 4Q – but chairman Ullman talked tough about maintaining the JCP rep as the leading home brand destination for consumers.

3. JCPenney - $3.058 billion in 2007

Mike Ullman has a new round of “explaining to do,” now that BB&B has edged into the No. 2 spot and could stake a claim on that “leading home brand destination” factor. JCP picked a less than perfect time to launch the ambitious – but not all that differentiated – American Living private label program with design by Polo, and to expand its direct-sourcing business. Maybe it’s time for JCP to let some of the better resources sell them some fresh goods, branded or otherwise.

3. Bed Bath & Beyond - $3.040 billion in 2006

BB&B won the specialty store traffic battle long ago. This chain is a destination – for holiday gifts and home-entertaining implements especially. But less than stellar brand statements make home textiles a question mark.

2. Bed Bath & Beyond - $3.100 billion in 2007

Better batten down the hatches, as the LNT disaster will be an ongoing drug on the market, and BBB needs to dodge the fallout.

4. Target - $2.615 billion in 2006

Remember how cool those Gap ads were? Gap Inc. hasn’t traded above $24 since June 2003. Target now owns the cool ad crown – and its soft home department is the most exclusively direct-sourced in the business. Last year, Global Bazaar stumbled. This year, that program recovered but now home textiles shoppers are in “down-trade” mode at Target, shunning collection goods for basics. Stay tuned.

4. Target - $2.710 billion in 2007

New ceo Gregg Steinhafel is a cool operator with a warm manner and second-generation merchant skills. Target has a way of consistently exceeding its shoppers’ expectations in fashion and value. This potent combination of executive and execution should make itself felt in Target’s soft home categories over what will be a very tough 12 to 18 months ahead for our industry.

5. Kohl’s - $1.100 billion in 2006

Loaded with exclusives, Kohl’s finally gets sniffles from the negative-comps flu. Very aggressive re-merchandising of soft home has already helped – but margins are in jeopardy.

5. Kohl’s - $1.163 billion in 2007

Team Kohl’s is proving its mettle, with best-of-class percentage growth in home textiles sales at 5.7% (Wal-Mart posted 4.7%, Target 3.6%, BBB 2.0%, TJX 0.8%; the other five retailers here all had negative change). And the merchants from Menomonee Falls are managing inventory with great fervor and discipline, so margins get some protection.

6. Kmart - $1.025 billion in 2006

One last fling with Martha before the end of the affair? As an encore, the impressive refreshing of MSEveryday has bought Kmart a year to prepare.

7. Kmart - $949 million in 2007

Kmart is now doing half the home textiles business it did in 2000, when volume peaked at $1.837 billion. Sears and Kmart together will give Cannon a shot – but in this climate I see that program taking hard blows from the hammer of Fieldcrest and friends at Target, and the anvil of workaday-priced goods at Wal-Mart.

7. Linens ’n Things - $993 million in 2006

They’ve cleared tons of dead inventory. Now they need merchandise statements to excite the shoppers. Check back in year four of the nine-year turnaround.

6. Linens ’n Things - $980 million in 2007

Let’s just move along – there’s nothing pretty to see here. This incredible shrinking specialty store chain was ruined by diving purposely into debt and by fundamental retail mismanagement – although owner Apollo will point to the sad economic climate as cover.

A climate affects all operators. Why is LNT the only top-10 retailer that is plunging over the falls? Well, here’s an item: Net interest expense was $3.97 million in 2005, before LNT was taken private; in 2006 it shot up to $78.94 million under Apollo and then zoomed to $107.64 million last year. The last time I checked, LNT was paying 10.9% interest on its debt notes. Egads.

8. Macy’s Home Store - $865 million* in 2006

Macy’s is on track – to ring up $400 million less than last year in total sales. But they are pumping more energy into home goods and marketing than ever before. No big payoff until 2008. (*Revised from $820 million.)

8. Macy’s Home Store - $835 million in 2007

How about no big payoff until 2010? The big unanswered question is: What’s going on with the Martha Stewart Collection? When you have no answer, go with clues – in this case, we are being smacked between the eyes with the “clue” that neither Macy’s nor Martha Stewart Living Omnimedia will release a single quantifiable measure on this massive program that was launched with great fanfare a full 10 months ago!

9. TJMaxx/Marshalls - $615 million in 2006

It’s a great time – not a good time, a great time – to be in the off-price business.

9. TJMaxx/Marshalls - $620 million in 2007

Compared to their relatively small sister division HomeGoods, these core TJX chains fell far short in soft home – and corporate leadership admitted as much. Which translates to trouble ahead for competitors, as TJX gets ready to up the ante in soft home categories.

10. Williams-Sonoma - $595 million in 2006

W-S has executed with fairly good consistency across its multi-format store and direct operations. Witness the careful development of West Elm. But it has taken its sweet time making the course-correction at Pottery Barn. Maybe it’s time to get radical: like converting 100 Barns to Elms.

10. Williams-Sonoma - $580 million in 2007

This smart, stylish retailer has made little headway. Trading at about half its year-ago value, W-S will have to sharpen its home textiles offering to stand out, as more and more competitors ape its Pottery Barn proposition.

Well, maybe in balance last November I was a bit too optimistic, generally. The outlook now is for BBB, Target and Kohl’s to keep improving their game against their Top-10 rivals. As for the rest: Watch out for the hungry merchandisers in the Top 20!