5 Retail Predictions for 2014

NEW YORK (TheStreet) - The retail sector saw no shortage of drama in 2013 as battles for corporate control and stunning sales drops grabbed headlines. So what might we expect in 2014?

Quite a bit, judging from what took place in 2013. Some highlights of the year:

J.C. Penney (JCP) battled to return to profitability after firing former Apple executive turned department store CEO Ron Johnson for alienating customers only to be replaced by his predecessor, Myron 'Mike' Ullman. The department chain's turnaround took too too long for Bill Ackman of Pershing Square Capital, who tried to get the retailer to speed things up. J.C. Penney fought back and Ackman finally ceded his board seat and stake in the retailer in August. All of that finger-pointing did little to remake the once-mighty department store chair. Analysts are forecasting a loss of $5.97 a share this year despite same-store sales that turned positive.

Men's Wearhouse (MW) and Jos. A. Bank Clothiers (JOSB) can't seem to agree on merger terms that work for both men's suits and sportswear retailers. Jos. A. Bank announced the latest of rejections earlier this week, the latest parry in lots of posturing. Men's Wearhouse: your move now.

Abercrombie & Fitch (ANF), founder and CEO Mike Jeffries has once again found himself in hot water after the resurfacing of impolite comments about why the company was unwilling to carry larger women sizes. The still tough economy along with a growing sense of consumers' unwillingness to accept Jeffries' insensitive remarks has crimped sales. It's now looking to expand the size offerings of its clothes after posting dismal results last quarter. Still even with investor prodding to replace Jeffries, the company renewed his contract. So much for independent boards.

Lululemon Athletica's (LULU) had a surprise fall from grace this year after the yoga apparel maker had a major yoga pant recall leading to the resignation of its CEO Christine Day. Lululemon's founder Chip Wilson just recently stepped aside as chairman after he too made insensitive comments about how the expensive pants were not made for larger size women. The company recently announced former TOMS Shoes President Laurent Potdevin was hired to be its new chief executive.

With Dec. 31, quickly approaching, it's time to clear out 2013 and to make way for 2014.  TheStreet asked several retail experts for their 2014 predictions. Here are five:

Nine West Reunites With Its Founder

1 Famed footwear fashion guru Vince Camutobuys back Nine West from Jones Group's (JNY), the shoe chain he started 35 years ago.

"Reuniting Vince with his earlier brand [will] capture some attractive full-price leases and improve their return-on-investment while at the same time, move Nine West retail to a mostly outlet concept," says Marie Driscoll of Driscoll Advisors.

RadioShack Cedes to Competitors

2. This year's holiday season will mark the last one for RadioShack (RSH) in its current form, forecasts Brian Sozzi, CEO and Chief Equities Strategist for Belus Capital Advisors.

"The main reason for RadioShack's extinction: it sells nothing of relevance for new tech upgrade cycles or the actual devices in the new tech upgrade cycle," Sozzi says. Ouch.

So, what can go in the empty storefronts? "Google (GOOG) pop up shops, or even Wal-Mart (WMT) pick up locations," Sozzi says.

In all fairness, Wall Street has been predicting RadioShack's demise for many years. Perhaps the prediction could turn out the other way around, and Radio Shack re-energizes 2014's comeback kid. Well, don't count on it.

Home Hardline Retailers Continue to Shine

3. In 2014, home price growth may slow and housing affordability may become slightly less attractive but the underlying demand continues to move as "more normal levels and pent-up demand provides an additional lift, particularly toward big-ticket categories like flooring," according to Wedbush Securities' 2014 Consumer/Retail Sector Outlook published on Dec. 17.

"We definitely see retailers exposed to the housing market in the 'haves' category. Housing continues to recover, providing significant benefits to home improvement retailers -- particularly those with exposure to big-ticket discretionary project spending," Wedbush vice president Seth Basham writes in an email. "We have our eye on companies like Lumber Liquidators (LL) as well as Lowe's (LOW) who stand to benefit from the strengthening housing cycle."

Lumber Liquidators is one of Wedbush's top picks for 2014. "We believe CEO Rob Lynch has transformed [Lumber Liquidators] into a best-in-class vertically-integrated growth retailer with enormous tailwinds supporting a medium-term 03% EPS growth rate on top of 63% growth in 2013," the Wedbush note says.

The Teen Retail Space Shakes Out

4. Teen retailers had a rough 2013, starting early in the year with the prolonged cold weather and continuing through the holiday season as customers chose to spend their meager discretionary funds on other items, like electronics. Several mall-based companies including Abercrombie & Fitch, American Eagle Outfitters (AEO) and Aeropostale (ARO) saw significant drops in sales.

But not all teen retailers are the same. Companies like H & M, Uniqlo and Forever 21 will continue to penetrate the U.S. teen market threatening the survival of Pac Sun (PSUN), Hot Topic, Wet Seal (WTSL), Express (EXPR) and others.

Why these three specifically?

The companies have "great sourcing that gives them pricing advantages, fast turnaround and great flow that reduces markdowns and creates continuing excitement and newness for the customer," says Michael Appel, president of Appel Associates. They also have "solid balance sheets with plenty of cash to fund rapid growth."

Wedbush managing director Gabriella Santaniello says teens and young adults remain "brand-phobic, resulting in a 'do-it-yourself' styling trend that is sweeping this age group," she writes in an email.

"We see this continuing in the New Year and will be watching companies like Urban Outfitters (URBN) who we believe are best positioned to benefit," Santaniello says.

A Macy's Prime?

5. Seeing the success of Amazon's (AMZN) two-day shipping subscription service, Amazon Prime, major retailers are likely eyeing the candy. (Amazon said in its most recently quarterly report that it had "millions of new Prime members" sign up for the service.)

Sterne Agee analyst Charles Grom thinks that a major omni-channel friendly retailer, such as Macy's (M) or Nordstrom (JWN), "will adopt an "Amazon Prime-like" free shipping program on its e-commerce platform," he writes in a Dec. 19 note. "Favorably, we think this would be an effective way to better engage customers, offer value, and increase loyalty, while also protecting share."

Written by Laurie Kulikowski in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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