The Gap logo is displayed at a Gap store in Los Angeles on April 25, 2023.
Mario Tama | Getty Images
Retail’s biggest winners in first-quarter earnings aren’t doing well because consumers are suddenly spending more on consumer goods – that’s because they’re getting good deals and cash-strapped shoppers are choosing them over competitors.
If there’s one takeaway from the results from the biggest U.S. retailers over the past few weeks, it’s that shoppers are still spending — but are a lot pickier about where they are.
As consumers suffer from ongoing inflation, high interest rates and an economy that feels more difficult than it actually is, they are prioritizing purchases that offer the right combination of value, convenience and fun.
Companies like Abercrombie & Fitch, TJX Company And gap impressed Wall Street with its results while others like it Kohl’s, American eagle And Goal disappointed.
Take Gap and Foot Locker – two unlikely winners who reported results on Thursday. Both retailers are in the midst of ambitious turnaround plans and are performing better than expected due to the new strategies they have implemented.
Gap posted positive comparable sales for all four of its brands — Athleta, Old Navy, Banana Republic and its namesake banner — for the first time in “many years,” beating Wall Street expectations across the board, the company said.
For years, Gap had been losing market share to strong competitors. But under new 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 less than a year, Gap’s sales and profits have improved significantly and its brands are beginning to be part of the cultural conversation again.
A few weeks ago, actress Anne Hathaway went to a Bulgari party wearing a white Gap shirt dress designed by the company’s new creative director, Zac Posen. Crucially, Gap released the $158 dress to consumers and it sold out within hours. This combination of marketing and exclusive product deliveries is what Gap has been missing for a long time and what the competition has already done.
Foot Locker has been in decline over the past few years, but with the right combination of new strategies and a bit of luck, the turnaround is showing signs of life.
Under CEO Mary Dillon, Foot Locker has worked to transform its stores, where it makes more than 80% of its sales. The company has sought to create not only a better shopping experience for consumers, but also a better place for its key brand partners.
Instead of two shoe walls with competing brands, Foot Locker is changing its fleet so that the brands have their own unique displays. Putting this strategy into action, its new “Store of the Future” concept in a New Jersey mall has become the best-performing store in North America in just a few weeks, Dillon told CNBC, adding that the brands from the excited about the new design.
The change couldn’t have come at a better time. Years after Nike’s strategy of cutting out wholesalers and selling directly to consumers, the retailer realizes it has gone too far and is now changing course.
With refreshed stores and better product presentations, consumers are also more likely to convert and pay full price – even Foot Locker’s lower-income customers.
“Our consumers…this is a category that is very important to them. So when people have discretionary income, it may be limited, but you’re going to prioritize where you spend it, right?” Dillon said. “We’re proving that people are willing to spend full price, but you have to have the right products and serve them in a way that makes them tempting, right? So it’s the entire customer experience that matters.”
Elsewhere, Dick’s Sporting Goods released a solid first-quarter report on Wednesday in which executives said average sales prices and transactions increased and that they saw no signs that consumers were trading for cheaper options. But that doesn’t mean shoppers are spending more broadly: Dick’s has long been recognized as a best-in-class provider that offers a solid shopping experience, meaning it can win even when consumers are picky about their spending.
Denim wars
Two retailers that didn’t have great quarters – American eagle And Kohl’s – Tell a story about poor execution or missing trends.
American Eagle beat earnings estimates significantly thanks to a new strategy to boost profitable growth, but fell short on revenue and gave cautious forecasts that were slightly below Wall Street expectations.
Jennifer Foyle, president and executive creative director of American Eagle, told CNBC that the brand is working to cut out items that aren’t landing with shoppers and instead focus on the items that are. She said the retailer had focused too much on jeggings in the past, but now low, loose fits are popular.
During a store visit to the American Dream mall in New Jersey on Thursday, an employee told CNBC that there are no low-profile, wide-open stores at the location and are only available online. There was now a wall of jeggings. Still, denim was a strong performer for the company during the quarter and there were a variety of other styles that resonated with customers at the site, the company said.
Denim is very popular among buyers. Search rates for denim are peaking in a 20-year data set, particularly in categories like tops and dresses, according to a Morgan Stanley research note.
Kohl’s misses the mark in far more meaningful ways. The retailer posted dismal results on Thursday as both profit and sales fell well short of expectations. It cut its full-year forecast and its shares plunged more than 20%, the stock’s largest daily percentage decline ever.
The weak results highlighted a challenge the retailer is still struggling with: keeping up with trends and staying relevant.
CEO Tom Kingsbury told CNBC he expects the “head-to-toe” denim trend to play a role in the second half of the year, but it may already be out of style by the time Kohl’s adds the garments to its shelves.
“Denim is 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 even more, you know, warm weather products.”
Gap, one of the longtime denim leaders, didn’t seem worried about denim falling out of favor due to warmer weather. CEO Dickson said the company is preparing to launch its “exclusive lightweight denim fabric” called “Ultra Soft” in time for summer.
For the aging department store Kohl’s, not keeping up with trends is a constant problem. Kingsbury told CNBC in March that Kohl’s purchased products for its juniors section for teen girls – one of the most trend-driven sections of its stores – 12 to 14 months in advance. When the garment went on sale, it was “dead on arrival.”
At a time when viral TikTok videos mean the life and death of trends, it’s more important than ever for retailers to stay on top of what’s working and what’s not with customers. Not only are they competing with established players, but they are also competing for customers with innovative but controversial startups like China-affiliated Shein, which can go from an idea to an online product in a matter of weeks.
That’s a far cry from lead times Under Armour, where it currently takes about 18 months to bring a product from idea to showroom. During a conference call with analysts on May 16, CEO Kevin Plank called the system “simply not competitive in the 2024 landscape” as he laid out a plan to streamline the process.
Meanwhile, Abercrombie & Fitch continued to deliver excellent results, even as the company begins to face tougher comparisons. The tremendous growth is due in part to the company’s responsiveness to its customers and its flexible supply chain that allows it to track trends quickly and efficiently.
The company posted its strongest first quarter in history and now expects fiscal 2024 revenue growth of 10%, above previous guidance of 4% to 6%.
CEO Fran Horowitz told CNBC that low-rise baggy jeans are also extremely popular with customers. During a recent visit by CNBC to its Hollister store, just a short walk from the American Eagle outpost, shoppers were presented with numerous pairs of jeans of this style as they entered the store.
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2024-05-31 20:32:54
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