The biggest winners of the primary quarter in retail are usually not because consumers suddenly began spending more on unnecessary goods, but because they’re generating good sales and cash-strapped shoppers are selecting them over the competition.
If there’s one thing that could be deduced from the numbers released by the biggest US retailers in recent weeks, it is that this: Consumers are still spending money, but they’re way more selective about it.
With persistent inflation, high rates of interest and an economy that feels tougher than it may very well be, consumers are specializing in purchases that provide the proper combination of value, convenience and fun.
Companies like Abercrombie & Fitch, TJX Companies And gap impressed Wall Street with its results, while others like Kohl's, American Eagle And Goal upset.
Take Gap and Foot Locker — two unexpected winners that released their results on Thursday. Both retailers are within the midst of ambitious turnaround plans and are achieving higher than expected results due to the brand new strategies they’ve implemented.
Gap reported positive comparable sales for all 4 of its brands – Athleta, Old Navy, Banana Republic and the label of the identical name – for the primary time in “many years”, thereby exceeding Wall Street expectations across the board, the corporate said.
For years, Gap had lost market share to big-name competitors. But under latest CEO Richard Dickson, the marketing guru credited with reviving the Barbie franchise, the clothing chain has focused on financial rigor, brand storytelling and product development. In lower than a 12 months, Gap's sales and profits have improved significantly, and its brands are starting to turn out to be a part of the cultural discourse again.
Just a few weeks ago, actress Anne Hathaway attended a Bulgari party wearing a white Gap shirt dress designed by the corporate's latest creative director, Zac Posen. Crucially, Gap sold the dress to consumers for $158 and it sold out inside hours. This combination of promoting and exclusive product releases was something Gap had long lacked and something its competitors had already done.
Foot Locker has been in decline for the past few years, but with the proper combination of latest strategies and a little bit of luck, things at the moment are turning around.
Under CEO Mary Dillon, Foot Locker has worked to rework its stores, where the corporate generates over 80% of its sales. The company has sought to create not only a greater shopping experience for consumers, but in addition a greater location for its key brand partners.
Instead of two partitions of shoes from competing brands, Foot Locker changes its collection in order that the brands have their very own unique displays. Its latest “store of the future” concept in a New Jersey mall that puts this strategy into motion has turn out to be its highest-grossing store in North America in only a couple of weeks, Dillon told CNBC, adding that the brands are excited concerning the latest design.
The change in direction couldn't have come at a greater time. After years of adopting a technique of cutting out wholesalers and selling on to consumers, the retailer now realizes it has gone too far and is changing course.
With modernized stores and higher product presentation, more consumers are shopping and paying full price – even Foot Locker's lower-income customers.
“Our consumers… this is a category that is very important to them. So if people have discretionary income, it may be limited, but you're going to prioritize what you spend it on, right?” Dillon said. “We're proving that people are willing to pay full price, but you have to have the right products and offer them in a way that makes them enticing, right? So the whole customer experience is really important here.”
Elsewhere, Dick’s Sporting Goods released a solid first-quarter report on Wednesday. Executives said average selling prices and transactions were up and so they saw no signs that customers were switching to cheaper alternatives. That doesn't necessarily mean shoppers are spending extra money, though: Dick's has long been considered a top-tier retailer that gives a solid shopping experience, meaning the corporate can win even when consumers are picky about spending money.
Denim Wars
Two retailers that didn’t have good quarters – American Eagle And Kohl's – tell a story about poor execution or missing trends.
Thanks to a brand new technique to boost profitable growth, American Eagle comfortably beat earnings expectations but fell short on revenue and issued a cautious forecast that was barely below Wall Street expectations.
Jennifer Foyle, president and executive creative director of American Eagle, told CNBC that the brand is working to weed out items that don't resonate with customers and deal with those who do. She said the retailer has focused an excessive amount of on jeggings previously, but now low-rise, baggy cuts are in.
During a visit to the American Dream mall in New Jersey on Thursday, an worker told CNBC that the low-slung baggy jeans are usually not available in shops and are only available online, but there’s a wall of jeggings. Still, denim was a robust sales driver for the corporate within the quarter and there have been quite a lot of other styles that resonated with local customers, the corporate said.
Denim is trending amongst shoppers immediately. According to a study by Morgan Stanley, searches for denim are reaching record highs across a 20-year dataset, especially for categories like tops and dresses.
Kohl's missed the mark in an excellent more significant way. The retailer released dismal numbers on Thursday, with each profit and revenue falling far in need of expectations. It cut its full-year forecast and its shares plunged greater than 20 percent – the biggest percentage drop the stock has ever seen in at some point.
The weak results highlight a challenge the retailer still faces: maintaining with trends and staying relevant.
CEO Tom Kingsbury told CNBC he expects the head-to-toe jeans trend to play a task within the second half of the 12 months, nevertheless it might be out of favor by the point Kohl's finally adds the clothes to its shelves.
“Denim is a pretty good business for us. I mean, it's really not the most important time for denim,” Kingsbury said. “We sell shorts and T-shirts. And more, you know, warm weather products.”
Gap, one in every of the long-time leaders within the denim sector, doesn't appear to be nervous about denim going out of favor with the hotter weather. CEO Dickson said the corporate is preparing to launch its “exclusive, lightweight denim fabric” called “Ultra Soft” in time for summer.
Failure to follow trends has been a perennial problem for the aging department store Kohl's. Kingsbury told CNBC in March that Kohl's bought products for its juniors' teen section — one of the vital trend-oriented areas of its stores — 12 to 14 months upfront. By the time the garments hit the sales floor, they were “dead from the start.”
At a time when viral TikTok videos mean the life and death of trends, it's more necessary than ever for retailers to remain on top of what's working with customers and what's not. They're not only competing with established players, but in addition vying for purchasers with modern but controversial upstarts like China-linked Shein, which may go from an idea to an internet product in a matter of weeks.
This is much from the lead times for Under Armourwhere it currently takes about 18 months to get a product from idea to showroom. During a conference call with analysts on May 16, CEO Kevin Plank called the system “simply uncompetitive in 2024” as he laid out a plan to streamline the method.
Meanwhile, Abercrombie & Fitch has once more delivered excellent results, although it now faces tougher comparisons. The rapid growth is due partially to the corporate's responsiveness to its customers and its flexible supply chain, which allows it to follow trends quickly and efficiently.
The company reported the strongest first quarter in its history and now expects revenue to extend 10% for fiscal 2024, above its previous forecast of 4% to six%.
CEO Fran Horowitz told CNBC that low-slung baggy jeans are also popular with customers. During a recent CNBC visit to a Hollister store, which is a brief walk from the American Eagle location, customers could see a lot of these jeans as soon as they entered the shop.
image credit : www.cnbc.com