Foot Locker, Inc. Stores.
Credits: Foot Locker, Inc.
The biggest winners in retail’s first-quarter profits aren’t booming because consumers are suddenly spending more on discretionary items — that’s because they’re executing well and cash-strapped shoppers are choosing them over competitors.
If there’s one takeaway from the results reported by America’s largest retailers over the past few weeks, it’s that shoppers are still spending — but are much more selective about where they do it.
Feeling the brunt of sticky inflation, high interest rates and an economy that feels tougher than it actually is, consumers are prioritizing purchases that offer the right mix of value, convenience and fun.
company likes Abercrombie & Fitch, TJX Corporation and gap Their results impressed Wall Street, while others liked Kohl’s, american eagle and Target Disappointed.
Take the gap sum Foot cabinet –Two unlikely winners when results are announced Thursday. Both retailers are working on ambitious turnaround plans and are reporting better-than-expected results thanks to new strategies.
Gap said its four brands — Athleta, Old Navy, Banana Republic and its namesake brand — posted positive comparable sales growth for the first time “in years,” beating Wall Street expectations across the board.
For years, Gap has lost market share to fierce rivals. But under new CEO Richard Dixon, the marketing guru credited with reviving the Barbie franchise, the clothing chain is focusing on financial discipline, brand storytelling and product development . In less than a year, Gap’s sales and profits improved significantly, and its brand began to become part of the cultural conversation again.
A few weeks ago, actress Anne Hathaway attended a Bulgari party wearing a white Gap shirtdress designed by the company’s new creative director Zac Posen. Crucially, Gap gave the $158 dress to consumers, and it sold out within hours. This combination of marketing and exclusive product drops is something Gap has long lacked and is something competitors are already doing.
Foot Locker has been in decline over the past few years, but with the right mix of new strategies and a little luck, its turnaround is showing signs of recovery.
Under Chief Executive Mary Dillon’s leadership, Foot Locker has focused on transforming its stores, where more than 80 percent of the company’s sales are made. It not only seeks to create a better shopping experience for consumers, but also a better place for its valued brand partners.
Instead of lumping together reversible shoes from competing brands, Foot Locker is changing its product line so the brand has its own unique presentation. Dillon told CNBC that its new “Store of the Future” concept at a New Jersey mall puts this strategy into practice, becoming its best-performing store in North America in just a few weeks, adding that the brand is excited about the new design. Very excited.
This change couldn’t have come at a better time. After years of pursuing a strategy of eliminating wholesalers and selling directly to consumers, the retailer realized it had gone too far and is now changing course.
With stores getting a new look and better product displays, consumers are converting at higher rates and paying full price — even low-income shoppers at Foot Locker.
“Our consumers… this is a very important category to them. So when people have discretionary income, it may be limited, but you prioritize where you spend your money, right? Dillon said. “We’re proving that people are willing to pay full price, but you have to have the right product and deliver it in an engaging way, right? So that’s where the whole customer experience is really important.”
elsewhere, dick’s sporting goods A solid first-quarter report was released on Wednesday, with executives saying average selling prices and transaction volumes rose and they saw no signs of consumers switching to cheaper options. That may not mean shoppers are spending more broadly, though: Dick’s has long been considered a best-in-class operator, offering a solid shopping experience, meaning it wins even when consumers are picky about their spending .
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Two retailers with poor quarterly results – american eagle and Kohl’s – Tell stories of missed trends or poor execution.
American Eagle easily beat profit forecasts thanks to a new strategy aimed at boosting profit growth, but it missed the mark on revenue and issued cautious guidance that was slightly below Wall Street expectations.
Jennifer Foyle, American Eagle’s president and executive creative director, told CNBC that the brand is working to eliminate items that don’t appeal to consumers and dig deeper into those that do. She said the company used to focus too much on leggings, but now low-rise, looser styles are becoming popular.
During a visit to the store at the American Dream Mall in New Jersey on Thursday, an employee told CNBC that the store did not have a low-rise, baggy in-store store and that purchases could only be made online. Meanwhile, there’s a wall of denim shorts. Still, denim remains a strong performer for the company this season, and it has a variety of other styles that are resonating with local customers, the company said.
Denim is spending its time with shoppers. A research report from Morgan Stanley shows that searches for denim peaked in the 20-year data set, especially in categories such as tops and dresses.
Kohl’s missed the mark in a more meaningful way. The retailer reported dismal numbers on Thursday, with profit and revenue well below expectations. The company lowered its full-year forecast and its stock price plummeted more than 20%, the largest one-day drop in the stock’s history.
The company’s weak results illustrate a challenge it’s still grappling with: trying to keep up with trends and stay relevant.
Chief Executive Tom Kingsbury told CNBC he expects the “head-to-toe” denim trend to play out in the second half of the year, but by the time Kohl’s starts adding it to its shelves, it may already be outdated.
“Denim has been a good business for us. I mean, this really isn’t the most important time for denim,” Kingsbury said. “We sell shorts and T-shirts. And, you know, warm-weather products.”
Gap, one of the longtime leaders in denim, doesn’t seem concerned that denim will fall out of favor as the weather warms. CEO Dixon said the company is preparing to launch an “exclusive lightweight denim fabric” called “Ultra Soft” in the summer.
For veteran department store Kohl’s, failure to follow trends has been an ongoing problem. Kingsbury told CNBC in March that Kohl’s used to buy products 12 to 14 months in advance for its teen department, which caters to teenage girls and is one of the store’s most trend-driven areas. When the clothing arrives on the sales floor, it’s “dead on arrival.”
In an age where viral TikTok videos can make the difference between life and death for a trend, it’s more important than ever for retailers to understand what content works for their customers and what doesn’t. They have to compete not only with legacy players but also for customers with innovative but controversial upstarts like China-linked Shein, which can take a product from an idea to its website in a matter of weeks.
This is a far cry from the delivery time Under ArmorCurrently, it takes about 18 months for a product to go from idea to showroom. During a May 16 earnings call with analysts, Chief Executive Kevin Plank called the system “uncompetitive in a 2024 scenario” while laying out plans to streamline the process .
Meanwhile, Abercrombie & Fitch posted another stellar set of results, although it’s starting to draw more stringent comparisons. The company has grown rapidly in part because of its responsiveness to customers and its flexible supply chain that allows it to chase trends quickly and efficiently.
The company reported its strongest first-quarter results in history and now expects fiscal 2024 sales to grow 10%, up from its previous forecast of 4% to 6%.
CEO Fran Horowitz told CNBC that low-rise, baggy jeans are also very popular with customers. While visiting a Hollister store just steps away from an American Eagle outpost, shoppers saw many of these styles of jeans as soon as they walked into the store.
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