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The seven brands featured in this report come from a range of sectors, from furniture to apparel to entertainment. But they share one thing in common – all these brands have been largely written off by leading retail or Wall Street analysts. We beg to differ.
Whether due to plummeting share prices, recent bankruptcies, low sales numbers, or difficult COVID recoveries, many struggle to identify a path to success for these companies. When looking at foot traffic trends, however, there are clear indications that every brand on this list has serious comeback potential. Keep reading to find out why we’re optimistic that these companies may well turn out to be the surprise retail rebounds of 2022.
We’ve been bullish about the potential of the office supplies space, believing that the pandemic created the opportunity for retailers like Staples and Office Depot to cater to the growing demand for work from home (WFH) support. Concepts such as Best Buy’s ‘Geek Squad’ gave us hope that the office supply space could see a wider and massive turnaround as consumers contracted with retailers for services previously offered by in-house IT or office management departments. Unfortunately, monthly visits from a Year-over-Two-Year (Yo2Y) perspective showed that apart from a few bright spots, the ongoing trend of visit decline continued.
Until recently.
Staples has seen decreasing foot traffic for years, but overall visits by the end of 2021 were stable in October, down only 1.3% in November, and up 2.4% in December compared to the same months two years prior. And the January decline was very limited, especially considering the broader retail challenges that stem from the combination of supply chain constraints, labor shortages, and COVID. Despite operating with significantly fewer stores – Staples has closed over 100 locations since the start of the pandemic – the brand is reaching overall Yo2Y visit increases.
But the brand seems to be succeeding in doing more with less. Consolidating its physical footprint has redirected Staples’ consumers towards its more successful locations, as illustrated by its Yo2Y visits-per-venue growth in October, November, and December.
Staples is also doing more than just closing underperforming branches to optimize its store fleet. In February 2020, just before the pandemic, Staples announced a new concept – Staples Connect. Launched in six redesigned Staples stores in the Boston area, Staples Connect provides coworking, podcasting, and community event spaces geared towards professionals, teachers, and students. In November ‘21, the company announced the opening of the first Staples Connect store on the West Coast.
While the future is anything but certain, the ongoing opportunity to support the shift towards hybrid work offers a powerful chance to penetrate a new market. In the same way stores like Home Depot successfully target both professional contractors and DIYers, Staples has an opportunity to focus on both the ongoing work needs of individual consumers in hybrid or WFH arrangements, as well as small and large business offices to supplement its traditional back to school boosts. The flattening visit declines only rekindles the excitement for this office supply surprise.
There are clearly reasons to feel wary about Tuesday Morning as a prospect, including a bankruptcy process that saw the chain’s footprint decline by nearly 200 locations. In addition, visits were down 15.2% in 2021 compared to 2019 and down 11.3% compared to 2018, signifying a serious step back.
Yet, there are also powerful indications that this decline could be short-lived. To start, the retailer is operating in an ideal retail segment where the wider home furnishings market is seeing significant strength. Players such as At Home, Floor & Decor and HomeGoods have experienced a surge of visits and success in recent months, and the persistence of hybrid work and WFH is likely to keep the segment growing in 2022.
The success of HomeGoods is especially promising, as the combination of the brand's value orientation and well-aligned offering have increased consumer demand. For example, while overall retail visits were down by over 4% in January compared to the same month in 2020, HomeGoods visits were up 7.3%.
The well-aligned value-oriented home decor offerings that have fueled HomeGoods’ success also define Tuesday Morning. And while visits for the challenged retailer were down 21.2% in January compared to the same month in 2020, there are other metrics that speak to the success of a more focused, right-sized retail fleet.
Visits per venue metrics for Tuesday Morning locations have been up in six of the last seven months compared to two years prior, with the only decline in September – at the height of the Delta wave – when visits were down a paltry 0.1%. And in January of this year, visits per venue were up 6.5% compared to January 2020, even though the month was especially difficult for retail due to rising Omicron cases, supply chain issues, and labor shortages.
This relative strength amidst the continued home furnishing surge, as well as the likelihood that shifting migrations patterns could push the demand later into the year suggest that Tuesday Morning may have a far more successful year than many expect.
For a movie theater sector already feeling the impact of increased pressure from streaming services, the pandemic was a perfect storm of ‘what can go wrong, will go wrong.’ Visits didn’t just decline, they disappeared, and early reopenings managed to recapture only part of the traffic these locations had seen in the past.
Recently, however, a recovery pattern has emerged. In October and December of 2021, AMC visits were down just 18.6% and 15.2%, respectively, compared to the same months in 2019. Unfortunately, a January defined by a massive increase in COVID cases limited the peak and caused a visit gap surge of 49.2% compared to the same month two years prior.
Still, there is reason to believe in a turnaround. The Yo2Y visit gap may have persisted in Q4, but loyalty rates have largely returned to pre-COVID levels – 28.2% of movie-goers visited AMC at least twice in Q4 2021, slightly more than the 26.0% of loyal AMC customers recorded in Q1 2020.
And action movies are coming back with a vengeance in 2022. If Spiderman could help drive the December visit gap to its lowest point in well over a year, then a whole run of new superhero movies – many of which saw releases delayed by COVID – may prove capable of consistently and significantly narrowing it over the next few years.
And while AMC may never fully recover its pre-COVID foot traffic, the company is working on several innovations that can drive a comeback without reaching 2019-level visit numbers. AMC is experimenting with variable ticket pricing, which could increase revenue by charging more for weekend showings. The company is also developing NFTs that are currently given away for free to reward moviegoers and loyalty club members but that may eventually be sold for profit. And instead of seeing home entertainment as its bitter rival, the theater chain is finding ways to reach consumers as they stream content in their homes by launching its own line of microwave and takeout/delivery popcorn.
Just like the belief that the rise of at-home fitness would render gyms obsolete – which has now been disproved – the assumption that streaming services render movie theaters irrelevant is fundamentally flawed. While some content is certainly better consumed at home, other, more experiential films are enhanced by the big screen and gain an added boost from the social effect of a theater.
The broader movie theater industry should consider focusing on upgrading the experience and adapting the concept to provide added value in an era of widespread streaming services and flatscreens. But in an environment that is continually impacted by economic uncertainty, a heavy-hitting roster of blockbuster movies and the excitement resulting from restrictions finally being lifted could position theater chains like AMC as one of the big surprises of 2022.
Remember parties? You know, those events that brought people together to celebrate holidays or major life events prior to COVID? Yeah, neither do we. Still, Party City remembers what a party is, and there are several indications that 2022 could be a big rebound year for occasion and holiday-focused retailers. Like other names on this list, we’re betting that the waning of the Omicron wave and the easing-up of pandemic-related restrictions will unlock demand for Party City.
And Party City’s 2021 weekly foot traffic trends confirm there is meaningful pent up demand. Through much of the spring and summer of 2021, visits were up by double-digits compared to 2019 as COVID-related restrictions were lifted and graduation celebrations commenced. But once the Delta wave hit, foot traffic trends began to decline.
And despite the COVID situation, Party City still saw very strong visit numbers leading up to Halloween 2021, culminating in a 139.1% week-over-week increase in visits the week of October 25th 2021. This indicates the clear interest in brick-and-mortar channels despite the widespread availability of online party supply stores, and that holidays and special events can still generate significant visit numbers even during challenging retail times.
Critically, Party City is more than just a post-COVID “return to normal” story. The company has undertaken several key product and in-store experience initiatives to drive visitations as demand for parties increases. This includes a full reset of five product categories, including party favors, girl’s birthday, boy’s birthday, candy, and tableware, which is already leading to stronger sell-through rates and improved inventory turnover.
Additionally, the company is accelerating the openings of next-generation locations, which feature in-store shops for key categories, improved product assortments, and improved sightlines. The retailer opened 95 next-generation locations in 2021 and plans to open another 100-125 locations in 2022. According to Party City management, new and remodeled next-generation stores are “averaging a mid-single-digit sales increase compared to control stores.”
Admittedly, Party City may see increased competition from new players, including Dollar General’s pOpshelf concept (one of our top retail stories to watch in 2022), which includes an assortment of party products. While early pOpshelf visitation trends indicate that this could be a formidable competitor to Party City and other occasion-based retailers, the introduction of this exciting new competitor may increase demand for the entire category and ultimately benefit other players as well.
Another retailer to keep a close eye on is Macy’s. The reasons for concern are also fairly evident – Yo2Y visits down every month since January 2021. But the data offers a glimmer of hope.
Overall Yo2Y visits in October 2021 were essentially equivalent to pre-pandemic levels, despite the brand operating with substantially fewer stores. And looking ahead, Macy’s store fleet consolidation may be key to its success in 2022.
One major challenge retailers face when effectively rightsizing is taking into account natural cannibalization patterns between stores thus undermining efforts to optimize the retail fleet. In other words, optimizing a brand’s overall physical retail footprint does not necessarily mean closing underperforming stores. In fact, deciding which stores to cull and which to keep based solely on the various stores’ hard performance numbers can end up eliminating stores with a high success potential that are currently being cannibalized by nearby branches of the same brand.
Likewise, maintaining several high-performing stores open incurs high operational costs in an area that happens to have a particularly high number of the brand’s customers, even though the brand could reach the same audience with a single, perhaps larger store.
However, location analytics data shows that Macy’s is rising to the challenge and relying on a holistic strategy to guide its rightsizing efforts. While overall visits are down, the average number of visits per location has been increasing significantly, indicating Macy’s success in reaching a similar audience with a smaller number of locations.
Macy’s has also shown a willingness to innovate with new concepts like Backstage and Market by Macy’s – clear signs of a retailer willing to push boundaries and evolve in the right direction. This approach along with their rightsizing efforts enable the brand to reach its massive audience more efficiently, providing ample reasons for optimism surrounding Macy’s next act.
Once one of the largest restaurant chains in the U.S. as measured by number of units (with 27,000 locations in 2015), Subway has shrunk its store base by almost 5,000 locations the past several years. Nevertheless, there is evidence that the chain’s store base optimization and its “Eat Fresh Refresh” menu update are bearing fruit, with the company reporting a 7.5% Yo2Y increase in comparable store sales, and its highest average unit volumes (AUV) since 2014 in 2021. (Subway did not disclose the Average Unit Volume (AUV), but based on an estimated AUV of $375K in 2020 and the reported comparable store sales results, we can infer that 2021 AUV was around $400K.)
Subway’s management maintains that the brand’s transformation is a “multi-year process,” but location analytics data already reinforce the progress that has been made since former Burger King CEO John Chidsey took the helm of the sandwich brand in November 2019. Most restaurant chains were still running between 5%-10% below historical visit per location trends in the second half of 2021, but Subway’s third- and fourth-quarter visits per location nearly matched its 2019 levels.
Subway’s management expects even further improvement in visitation in the years to come. In an interview with Nation’s Restaurant News late last year, Chidsey said that last year’s menu overhaul was "Refresh 1.0…and Refresh 2.0…with a lot more new products …will be rolled out in 2022…more enhancements to our digital app…coming out in 2022, [and] …a new catering program." Each of these efforts has the potential to drive visits per location and AUV well ahead of historical averages.
While Wall Street may not be looking favorably at Citi Trends, we believe that, like the others on this list, Citi Trends has the potential to surprise in 2022. After reporting a 14.8% Yo2Y store sales increase during holiday sales, Citi Trends CEO announced that “looking ahead, we remain confident in the long-term trajectory of the business. For fiscal 2022, we plan to open approximately 45 new stores, coupled with remodeling approximately 45 stores, all reflecting our new CTx format.” This is up from the company’s previous projections of 40 new stores and 40 remodels in 2022.
CTx, which stands for Citi Trends Experience, is a full renovation and design overall of the Citi Trends experience. The company piloted the CTx format in early 2021, and announced in November 2021 that it plans to upgrade all new stores and remodels as this new format has had a positive impact on conversions.
The foot traffic data also provides reasons for optimism. Citi Trends traffic outperformed its Yo2Y traffic nearly every month of Q3 and Q4 in 2021 as the other apparel sector and discount retailers such as dd’s DISCOUNTS struggled to maintain a consistent recovery arc.
In December, for example, Citi Trends posted a 21.0% increase in Yo2Y visits, compared to dd’s DISCOUNTS’ visit increase of just 4.1%, and nationwide apparel visits’ decrease of 5.2%.
The combination of store remodels, positive foot traffic trends, and overall strength of the off-price sector positions Citi Trends to surprise in 2022.
US General George Patton famously said “success is how high you bounce when you hit bottom” – and this is as true in life as in retail. The brands featured here appear to be underperforming, but recent foot traffic trends on top of the various efforts these companies have made to proactively evolve their brands lay the groundwork for an unanticipated turnaround. So while the seven brands listed in this report appear to have hit bottom at some point over the past two years, we believe they now hold tremendous promise to bounce back exceptionally high.
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