An employee of Nordstrom arranges a floral dress on a mannequin in one of the retailer’s department stores.
Ben Nelms | Bloomberg | Getty Images
Outside in sweatpants, blazers, lipsticks and stunning prints on dresses.
Americans are tidying up their closets and spending more on more stylish clothes, makeup, and accessories as they begin to go out more and venture back into the offices. The trend is especially pronounced among higher-income shoppers who are eager to spend on these items again, even amid rising inflation and an uncertain economy, say analysts and company executives.
“Masks are being removed,” Macy’s CEO Jeff Gennette said after the company raised its profit prospects and stayed on Thursday in its sales orientation for the year.
The sentiment was echoed by a number of other retailers who reported quarterly results this week, including the makeup and beauty product chain Ulta Beauty and parent company Anthropologie Urban Outfitters. People are paying to look better when they leave home again, they said.
The latest round of results offers a more nuanced view of the economy after two of the largest retailers, Walmart and Target, sent shockwaves across the market with negative forecasts and warnings that some buyers are becoming more price-sensitive amid ‘high inflation for decades.
Rising food and gas prices are pinching lower-income Americans who are slashing spending, executives say. But so far, even the threat of a possible recession does not stop higher-income consumers from spending on items that were lost during the early days of the pandemic.
“Colorful clothes from head to toe”
At Macy’s, Gennette said shoppers spend more and more “hours” browsing stores, especially in urban markets like New York. A year ago, he said people were more likely to come in and out.
“The luxury customer has come back in a big way,” he said in a telephone interview.
But Gennette noted that shoppers who earn less than $ 75,000 a year are looking for more discounts.
The behavioral split also appears to be occurring in Urban Outfitters. The company’s Anthropologie chain, known for its playful costumes and higher-income consumers, saw sales rise 18% during the quarter. In its eponymous chain, which caters to younger shoppers in its first or second job, sales rose just 1%.
“There has been a kind of bifurcation,” Urban Outfitters CEO Richard Hayne said in a conference call Tuesday evening.
But even shoppers trying to save money may be willing to pay for items like coveted T-shirts or bags, especially if they think a store may be out of stock, according to a retail expert.
“It’s a mindset. It’s a psychology: ‘I want to do things and I need new things to put on,'” Jan Kniffen, CEO of retail consultancy J Rogers Kniffen Worldwide, said in an interview with Squawk Box. from CNBC this week. .
Kniffen said people are more likely to try to save on groceries, where cheaper options may not be as different as brand names: “Replacement is so easy in the grocery store space.” he said.
Makeup chain Ulta Beauty also easily exceeded Wall Street sales expectations this week, with shoppers buying items to pamper and dress up for social gatherings. The company raised its full-year outlook after first-quarter sales rose 18% to locations set a year ago.
“There are new makeup trends that excite us, definitely a push towards bold, bright, glamorous and bright looks,” said Ulta CEO Dave Kimbell. “People are ready to go out into the world and that shows up.”
Kimbell said makeup is seen as an affordable indulgence even when people have tighter budgets. Express clothing retailer is also benefiting from people’s eagerness to go out and dress up again, with a 31% increase in in-store sales during the quarter.
“One of the most important fashion trends in women right now is color dresses from head to toe,” Express CEO Tim Baxter said in a telephone interview. “We haven’t been in this kind of fashion cycle in a long time.”
Agitated atmosphere for some
Changing behaviors mean that retailers who sell more casual clothing, such as pajamas and sweatshirts, could now suffer more harm than their rivals after seeing an increase in sales when people hid in their homes.
Some are now laden with pandemic-friendly clothing inventories that were stocked when people were looking for comfort above all else. These items may eventually need a big discount.
American Eagle said Thursday that first-quarter demand was “well below” expectations and cut its earnings forecast for the year. Stocks rose 46% from a year ago. The company’s Aerie division sells casual wear, training clothing and underwear to teenagers and younger women.
Abercrombie & Fitch also said inventory rose 45% in its first fiscal quarter from a year ago and lowered its sales forecast for the year. And Gap’s first-quarter sales fell, dragged down by Old Navy.
“Last year, we earned a lot with active and polar, and kids and babies, which is our sweet spot for Old Navy,” Gap CEO Sonia Syngal said in a phone interview. He said the return of weddings, special occasions and office life is now putting pressure on these categories.
Gap’s inventory increased 34% during the period and the company narrowed its profit target for 2022. Only its Banana Republic chain, which serves a higher-income customer, saw an increase in Gap inventory. sales in the same stores.
In an Old Navy store that Syngal recently visited, where the average revenue in the area is about $ 100,000, he said that the behavior of shoppers has not changed much. But elsewhere where the average income in the area was about $ 50,000, he said the financial pressures are clear.
“There’s a lot more focus on value for money,” he said, adding that people don’t come in as often either.
Stacey Widlitz, president of retail consultancy SW Retail Advisors, said the varied results of the industry reflect how the economy is affecting people as they emerge from the pandemic.
“It’s a change in spending. It’s a change in behavior. And it affects different companies differently,” he said.
—Melissa Repko of CNBC contributed to this report.