A Foot Locker, Inc. store
Courtesy of: Foot Locker, Inc.
Feeling the weight of persistent inflation, high interest rates and an economy that appears tougher than it actually is, consumers are prioritizing purchases that offer the right combination of value, convenience and pleasure.
Companies like Abercrombie & Fitch, TJX Companies and Gap impressed Wall Street with their results, while others like Kohl’s, American Eagle and Target disappointed.
Take Gap and Foot Locker – two unlikely winners that released their results on Thursday. Both retailers are engaged in ambitious turnaround plans and are performing better than expected thanks to the new strategies they have implemented.
Gap reported positive comparable sales for its four 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 dynamic competitors. But under new CEO Richard Dickson, the marketing guru credited with reviving the Barbie franchise, the clothing chain has focused on financial discipline, brand storytelling and product development. In less than a year, Gap’s sales and profits have improved significantly and its brands are once again beginning to become part of the cultural conversation.
A few weeks ago, actress Anne Hathaway headed to a Bulgari party wearing a white Gap shirt dress designed by the company’s new creative director, Zac Posen. Crucially, Gap dropped the $158 dress to consumers, and it sold out within hours. This combination of marketing and exclusive product launches is what Gap has been missing for a long time and what its competitors were already doing.
Foot Locker has been in decline over the past couple of years, but with the right combination of new strategies and a little luck, its turnaround is showing signs of life.
Under Mary Dillon’s leadership, Foot Locker has worked to change its stores, where it generates more than 80% of its sales. The company has strived to create not only a better shopping experience for consumers, but also a better environment for its core brand partners.
Instead of two walls of shoes with competing brands mixed in, Foot Locker is changing its fleet so that brands have their own unique displays. Its new “store of the future” concept in a New Jersey mall, which brings that strategy to life, became its best-performing store in North America in a matter of weeks, Dillon told CNBC, adding that the brands were delighted with the new design.
This change could not have come at a better time. Years after Nike began its strategy to eliminate wholesalers and sell directly to consumers, the retailer realizes it has gone too far and is now changing course.
With refreshed stores and better product displays, consumers are also converting more and paying full price, even Foot Locker’s low-income shoppers.
“Our consumer… it’s a category that’s very important to them. So when people have discretionary income, it may be limited, but you’re going to prioritize where you spend it, is not it ?” Dillon said. “We’re proving that people are willing to spend top dollar, but you have to have the right products and serve them in a way that makes them attractive, right? So that’s where customer experience as a whole really matters.”
Elsewhere, Dick’s Sporting Goods released a strong first-quarter report on Wednesday, as executives said average selling prices and transactions rose and they saw no signs of consumers abandoning cheaper options. That may not mean shoppers are spending more: Dick’s has long been considered a best-in-class operator with a solid shopping experience, meaning it can win even when consumers are picky about their expenses.
Two retailers that didn’t have good quarters — American Eagle and Kohl’s — tell stories of a lack of trends or poor execution.
American Eagle comfortably beat earnings estimates on the back of a new strategy designed to drive profitable growth, but the company missed revenue and issued conservative forecasts that were slightly below Wall Street expectations.
American Eagle President and Executive Creative Director Jennifer Foyle told CNBC that the brand is working to remove items that aren’t appealing to shoppers and lean into those that are. She said the retailer focused too much on jeggings in the past, but now loose, low-rise fits are in style.
During a visit to a store at the American Dream mall in New Jersey on Thursday, an associate told CNBC that the location did not have low-rise and loose fit stores and that they were not only available online. Meanwhile, there was a wall of jeggings. Nonetheless, denim performed strongly for the company during the quarter, and it offers a variety of other styles that resonated with customers there, the company said.
Denim is having a moment with buyers. Search levels for denim are at record highs over a 20-year database, especially for categories like tops and dresses, according to a research note from Morgan Stanley.
Kohl’s misses the mark in a much more significant way. The retailer reported dismal numbers on Thursday, with its profits and revenue falling well short of expectations. It lowered its forecast for the full year and its shares plunged more than 20%, the largest single-day percentage drop on record.
The weak results illustrate a challenge the retailer still faces: keeping up with trends and staying relevant.
CEO Tom Kingsbury told CNBC that he expects the “head-to-toe” denim trend to play a role in the second half of the year, but it could already be out of style by the time Kohl’s decides to add the clothes to his shelves.
“Denim is a good business for us. I mean, it’s really not the biggest time for denim,” Kingsbury said. “We sell shorts and t-shirts. And more, you know, warm weather products.”
Gap, one of the long-time leaders in denim, doesn’t seem to be worried about denim losing popularity due to warmer weather. CEO Dickson said the company was preparing to launch its “exclusive lightweight denim fabric” dubbed “Ultra Soft” in time for summer.
Failing to keep up with trends is an ongoing problem for aging department store Kohl’s. Kingsbury told CNBC in March that Kohl’s used to buy products for the junior section aimed at teenage girls — one of the trendiest areas of its stores — 12 to 14 months in advance. When the clothes arrived in stores, they were “dead on arrival.”
In an age where viral TikTok videos dictate 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 working with customers. They’re not just competing against incumbents, they’re also competing to win innovative but controversial customers, like China-linked Shein, which can go from an idea to an online product in a matter of weeks.
That’s a far cry from the delivery times at Under Armour, where it currently takes about 18 months to take a product from an idea to a showroom floor. During an earnings call with analysts on May 16, CEO Kevin Plank called the system “simply uncompetitive in the 2024 landscape” as he laid out a plan to streamline the process.
Meanwhile, Abercrombie & Fitch posted another set of stellar results, although it’s starting to make comparisons more difficult. It has seen tremendous growth in part because the company listens to its customers and has an agile supply chain that has allowed it to follow trends quickly and efficiently.
The company reported its strongest first quarter ever and now expects sales to grow 10% in fiscal 2024, up from a previous forecast of between 4% and 6%.
CEO Fran Horowitz told CNBC that loose, low-rise jeans are also very popular with its customers. During a recent CNBC visit to its Hollister store located just steps from the American Eagle outpost, there were plenty of jeans in this style on display for shoppers as they entered the store.