Macy's says inflation is slowing spending, but not by the wealthy
By Parija Kavilanz, CNN BusinessUpdated: Tue, 23 Aug 2022 20:38:31 GMTSource: CNNBusinessPersistent high inflation has taken a toll on shoppers, Macy's said on a conference call Tuesday following
By Parija Kavilanz, CNN BusinessUpdated: Tue, 23 Aug 2022 20:38:31 GMT
Source: CNNBusiness
Persistent high inflation has taken a toll on shoppers, Macy's said on a conference call Tuesday following the retailer's second quarter earnings report.
But while the most budget-conscious among them have curtailed their discretionary purchases, the retailer said its more affluent consumers are still spending freely.
The evidence of that shift was clear in sales at Macy's various store divisions for the quarter ended July 30. The company operates its namesake stores, as well as Bloomingdale's and Bluemercury locations.
The retailer said in-store sales at Macy's — which tends to draw more mid to upper-income shoppers — fell 2.9% in the period. That same sales measure, however, rose at its higher-end, company-owned Bloomingdale's stores and also its Bluemercury luxury cosmetics units (8.8% and 7.6% respectively.)
"We're seeing our most affluent customers continue to spend at very strong levels ... $150,000 and above," Jeff Gennette, Macy's CEO said during a call with analysts Tuesday. Gennette said Bloomingdale's business "continues to be quite robust."
At the same time, he said Macy's customers across all income tiers "slowed and shifted their spend." He blamed inflation for pushing up prices on groceries and fuel, leaving less money in the wallets of price-sensitive households to spend on things other than necessities.
"The consumer is not as healthy as they were in prior quarters," Adrian Mitchell, Macy's chief financial officer, told analysts on the call. "We have seen declining retail traffic in areas of weakening apparel sales over the quarter as the consumer faces higher costs on essential goods, particularly grocery."
Macy's also lowered its revenue and profit outlook for the rest of the year, citing continued deterioration of consumer discretionary spending in some of its categories and more markdowns to clear unsold merchandise.
Macy's joins a growing list of stores stuck with a glut of unsold products.
Sluggish consumer demand has also left Kohl's,Target and Walmart with an inventory mess and its shoppers confused about which products they will find when they visit stores.
Macy's said its inventory was up 7% in the quarter. Gennette said the retailer would be taking aggressive steps, including discounting to drive sales for older merchandise, its private brand products and pandemic-related categories.
The inventory backlog can be a turnoff for shoppers, said Neil Saunders, retail analyst and managing director at GlobalData Retail.
"The problem in the current environment where people are not spending as freely as they were last year, is that consumers want to get bang for their buck," Saunders said.
"If they're spending a lot they want to feel good about the place where they are buying, and are becoming increasingly intolerant of mediocre experiences," he said.
Macy's, he said, needs to clean up its inventory problems both on the backend and also where it's most visible to customers.
"The experience in most Macy's stores outside of the big city locations is pretty dismal," Saunders said. "Merchandising is poor, there is a lot of mess and clutter, and some of the older shops feel shabby and run down."
Parties are in, pandemic dress downs are out
In terms of what's selling, shoppers are showing a strong desire to bounce back to their pre-pandemic lifestyles, according to Macy's.
They're buying a lot more of workwear, sportswear, fragrances, shoes, dresses and luggage, said Gennette. At the same time, they're buying less loungewear, sleepwear and home-related goods.
To that end, he said Macy's will add fresh inventory in categories where there is demand, especially fashion.
"We're making strategic decisions to fuel the second half of the year, particularly by rebalancing our mix of market in private brands to ensure that we have the products our customers expect to see over the holidays," he said.
Toys is another area where Macy's is hoping to be a strong player for the upcoming holiday season. Macy's and Toys "R" Us recently announced an expanded partnership to have a Toys "R" Us in every US Macy's in the next few months.
"Toys is a huge opportunity for us with a fair share of market opportunity of $1 billion in annual sales," said Gennette. "When all is said and done, we'll have 400 Toys "R" Us shops that will be constructed, including some flagships, by October 15. So we're well on our way on that."
