By Katherine Masters
NEW YORK (Reuters) – Quarterly results from Macy’s and Nordstrom this week will allow investors to find out whether new inventory at lower prices, like $59.50 pull-on work pants and discounted UGG slippers, are finally drawing shoppers back to the U.S. department store chains.
In an effort to boost sales, Macy’s – which reports second-quarter results on Tuesday – has focused on revamping its private brands, including its new On 34th label launched in July. Nordstrom, which reports results on Thursday, hopes to turn around its struggling off-price Rack business with a focus on 100 “strategic” brands, Chief Executive Officer Erik Nordstrom told investors in March.
Analysts expect Macy’s to post a 87% slide in second-quarter profit, dragged down by heavy discounting to clear spring and early summer merchandise, according to Refinitiv.
Nordstrom’s second-quarter revenue is expected to fall 11% while analysts anticipate a nearly 45% fall in profit.
Retailers from Target to Coach parent Tapestry have cut expectations for profits and sales for the year as U.S. shoppers cut back on purchases of discretionary items like handbags and apparel.
Both Macy’s and Nordstrom may be losing share in women’s apparel to value retailers such as Walmart and Amazon, according to survey data from analytics company Prosper.
In mid-July, it asked more than 7,800 men and women where they most often shopped for women’s clothing. Thirteen percent answered Walmart and 9% answered Amazon, compared to 5.8% for Macy’s and 3.3% for Nordstrom.
Consulting firm Deloitte predicted in July that back-to-school spending on children and young adult clothing would fall 14% year-over-year. Deloitte reported that parents are prioritizing school supplies such as pens and notebooks over clothing and technology such as laptops and tablets.
Results for the quarter ended July 30 can provide only a partial snapshot of the back-to-school shopping season. Still, the retailers’ executives may provide Wall Street with new clues on what styles, if any, are selling well ahead of the new school year.
Macy’s new private-label brand, On 34th, is aimed at women aged 30 to 50 and includes low-priced staples such as a soft-knit button-down top priced at $39.50, as well as trendier apparel like a $79.50 tulle midi-skirt and a $275 suede leather jacket.
At a launch event last month, Macy’s top executives said the brand was designed for “seasonless” dressing, with knits and fabrics – including items such as fine-gauge sweaters – meant for layering.
Macy’s owns more than 20 private label brands, which are developed by the retailer and produced by its own suppliers rather than purchased wholesale from other apparel makers.
Private brands accounted for roughly 16% of Macy’s sales in 2022, and the retailer is hoping that focusing on more versatile apparel will help it avoid the heavy discounts it has had to make on unsold spring and summer clothing, which will likely drag down profits.
Kathy Gersch, a retail industry consultant at Kotter International, said stores’ own private labels are more profitable than buying inventory wholesale from third-party garment makers. Yet the higher profit margins can be offset by heavier investments by stores in product development and marketing.
“They have to try to make them more compelling than other mass market clothing in order to make it a real draw, so people actually come in for those brands,” she said.
Nordstrom so far has disclosed few specifics about the new merchandise intended to revive the Rack, including the brands and categories it plans to prioritize. But executives have told investors to expect improvements in its assortment by mid-2023. On Monday, Rack’s website was advertising brands including Kate Spade, Adidas, Steve Madden and Cole Haan.
Nordstrom’s focus on revamping its inventory came after a disastrous effort to bring in more low-priced goods, which turned off shoppers visiting Rack stores for deals on the same clothing and accessories available at Nordstrom.
(Reporting by Katherine Masters in New York; Granth Vanaik and Savyata Mishra in Bengaluru; editing by Deepa Babington)
