A Nordstrom employee fixes a floral dress on a mannequin in one of the retailer’s department stores.
Ben Nelms | Bloomberg | Getty Images
Gone are the sweatpants, make way for blazers, lipstick and eye-catching prints on dresses.
Americans are sprucing up their wardrobes and spending more on dressier clothes, makeup and accessories as they begin to go out more and return to the office. The trend is especially pronounced among high-income shoppers who are eager to splurge on such items again, even amid soaring inflation and an uncertain economy, analysts and business executives say.
“The masks are falling,” Macy’s CEO Jeff Gennette said after the company boosted its earnings outlook and maintained its full-year sales forecast on Thursday.
The sentiment was echoed by a series of other retailers that reported quarterly results this week, including makeup and beauty chain Ulta Beauty and Anthropologie parent company Urban Outfitters. People are paying to look their best when they leave home again, they said.
The latest set of results offer a more nuanced look at the economy after two of the biggest retailers – Walmart and Target – sent shockwaves through the market with pessimistic forecasts and warnings that some shoppers are becoming more sensitive to prices in a context of high inflation for decades.
Rising food and gas prices are pinching lower-income Americans who are cutting spending, leaders say. But so far, even the threat of a possible recession isn’t stopping high-income consumers from spending on items they missed in the early days of the pandemic.
‘Head-to-toe color costumes’
At Macy’s, Gennette said shoppers are increasingly spending “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 is back in full force,” he said in a phone interview.
But Gennette noted that shoppers making less than $75,000 a year are looking for more discounts.
The behavior divide also seems to be playing out at Urban Outfitters. The company’s Anthropologie channel, which is known for its playful dresses and caters to high-income consumers, saw sales increase 18% in the quarter. At his eponymous channel, which caters to young shoppers in their first or second job, sales rose just 1%.
“There’s kind of a bifurcation that’s happened,” Urban Outfitters CEO Richard Hayne said on a Tuesday night conference call.
But even shoppers trying to save might be willing to shell out for items like shirts or handbags they covet, especially if they think a store might run out of stock, a retail expert says. .
“It’s a mindset. It’s a psychology: ‘I want to go do things and I need new things to wear,'” said Jan Kniffen, CEO of the retail consultancy J Rogers Kniffen Worldwide, in an interview on CNBC’s “Squawk Box” this week. .
Kniffen said people are more likely to try to save on groceries, where cheaper options might not be so different in quality from big-name brands: “Substitution is so easy in the space of grocery store,” he said.
Makeup chain Ulta Beauty also easily beat Wall Street sales expectations this week, with shoppers picking up pampering items and dressing up for social gatherings. The company raised its full-year outlook after first-quarter sales jumped 18% at established locations from a year ago.
“There are new trends coming to makeup and we’re excited, definitely a push towards bold, bright, glamorous, sparkly looks,” Ulta CEO Dave Kimbell said. “People are ready to go out into the world and it shows in the looks.”
Kimbell said makeup is seen as an affordable indulgence, even when people have tighter budgets. clothing retailer Express is also benefiting from people’s eagerness to get out and get dressed, with same-store sales up 31% in the quarter.
“One of the biggest trends in women’s fashion right now is head-to-toe color suits,” Express CEO Tim Baxter said in a phone interview. “We haven’t been in this kind of fashion cycle for a long time.”
Hectic environment for some
Changing behaviors mean retailers selling more casual wear, such as pajamas and tracksuits, may now suffer more than their rivals after seeing a spike in sales as people hunker down at home.
Some are now struggling with stocks of pandemic-friendly clothing they stockpiled when people were looking for comfort above all else. These items may eventually need to be heavily discounted.
American Eagle said Thursday that first-quarter demand was “well below” its expectations and lowered its profit forecast for the year. Inventories are up 46% from a year ago. The company’s Aerie division sells casual wear, workout gear and lingerie to teenage girls and young women.
“Last year, we won big with activewear and fleece, and kids and infants, which is our strong point for Old Navy,” Gap CEO Sonia Syngal said during the interview. ‘a telephone interview. She said the return of weddings, special occasions and office life is now putting pressure on those categories.
Gap’s inventory rose 34% in the period and the company cut its 2022 profit forecast. Only its Banana Republic chain, which caters to higher-income customers, reported an increase in sales at comparable stores.
At an Old Navy store Syngal recently visited, where the average income in the area is around $100,000, she said shopper behavior hasn’t changed much. But at another location where the average income in the area was around $50,000, she said the financial pressures were clear.
“There’s a lot more emphasis on value for money,” she said, adding that people don’t come as often either.
Stacey Widlitz, president of retail advisory firm SW Retail Advisors, said the mixed results in 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 hits different businesses differently,” she said.
—CNBC Melissa Repko contributed to this report.