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Mark Cohen on struggling retail players: Sears, Kmart are 'essentially over'

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U.S. holiday retail sales rose 3% as online shopping boomed this holiday season, according to Mastercard’s latest report. Mark A. Cohen, Columbia University Director of Retail Studies joins Yahoo Finance Live to break down the biggest winners and losers in retail this holiday season and discuss the outlook for retailers in 2021.

Video Transcript

JULIE HYMAN: In late November, the National Retail Federation predicted that holiday sales this November and December would grow 3.6% to 5.2% over 2019. Our next guest says, not so fast. Maybe it won't be that strong. Mark Cohen is Columbia University Director of Retail Studies. Thank you for being here, Mark. So what's your outlook for the holiday season in terms of the overall growth that we might see?

MARK A. COHEN: I thought that 3.5% to 5% was a fantasy. That would foretell a normal holiday season, and there's nothing about anything in 2020 that could be described as normal, let alone the holiday season. I would point out that the holiday season is not, doesn't end on December 25. It's really the holiday quarter, November, December and January. Mastercard was kind of ebullient about their view on sales up until Christmas Eve, at something like 3% or just a little bit less than 3%.

But then I think we will probably see that consumers have completely shut down. Returns are allegedly running at much higher levels than a year ago. And my sense is that traffic both online and in brick and mortar will really have come to a dead stop following Christmas right into the final month of the quarter in January. So I'm sticking by 1% to 2%. And would find that, frankly, to be somewhat remarkable, if it's actually going to be the case.

BRIAN SOZZI: Mark, I was reflecting a little bit back to all the times we've talked this year. And we always seem to be focusing on the losers. So if it ain't broke, why fix it? On your list, you call out Macy's as a loser from this holiday season. What does losing look like for a company like that exiting a tough holiday season like this? The enter 2021, how many more store closures are they going to have? Are you talking debt defaults? How bad could it get?

MARK A. COHEN: I think losing is failing to pivot to reflect what consumers really were looking for this year, which is principally home furnishings, home fashions, housewares, products and categories that reflect the lifestyle changes that consumers faced this past year and will continue to face well into 2021. Macy's really did not capitalize on the opportunity to modify its assortments.

Their web business, which is not insubstantial, really simply reflected whatever it was that was on sale each week, rather than telling an effective story, which is something that Target, Walmart, Costco and certainly Amazon devoted themselves to. So losing is not only losing volume, but failing to reflect on the change in the world and the fact that that change is likely to be somewhat lasting.

MYLES UDLAND: And I wanted to pick up on that lasting part, Mark, because I think there are some questions about what the next, not just next year, next five look like for a Wayfair, an RH, Williams-Sonoma that have done well in this kind of environment. Do you think it's maybe the retail business got too excited about the experiences over goods kind of paradigm in the last decade, and now we're going to see some reversion here? Is that a trend that you're sort of keeping in mind here?

MARK A. COHEN: Well, experiential retail has been on the lips of every pundit for the last few years, as you mentioned. Experiential retailing is important, but at the end of the day, it's always about product. It's about the kinds of things customers are seeking and the manner in which you can convey them as a retailer. Clearly, the e-commerce business, which was running at a double digit clip for quite a few years now, has been vastly accelerated in the crisis. And though that acceleration will necessarily abate somewhat, it's still going to be consequential.

That puts under tremendous pressure the number of stores, the amount of square footage that retailers, particularly legacy retailers like Macy's, support. So I think they'll be tremendous continued consolidation of real estate portfolios. And of course, all retailers have to find ways to make their e-commerce business more financially efficient and attractive from an investor point of view. It's an expensive business to support, and currently, very few retailers have the wherewithal to make sense of it.

BRIAN SOZZI: Mark, some viewers might be surprised to know that, or learn that Sears and Kmart still have a couple hundred locations open. Unclear who goes there, if anyone. What's the outlook for that chain? Is this, the situation with COVID, finally puts this company 10 feet under early next year?

MARK A. COHEN: Well, though they may have some stores that remain open, I think what's holding them off from closing outright is that there may still be NOLs available for Eddie Lampert to harvest. At the end of the day, the business is essentially over. It's something I almost didn't want to mention, because it's meaningless. I just can't imagine what the future would hold for whatever remains as they hang in there as enterprises.

JULIE HYMAN: Eddie Lampert. There's a name I haven't heard in a little bit.

MYLES UDLAND: For good reason.

JULIE HYMAN: Mark A. Cohen, thank you so much for giving us your insight today. Columbia University Director of Retail Studies. Thanks, really appreciate it.