Business
Retailers see a tough year ahead, so they’re rolling out the recession playbook
Mark Makela | Getty Images
Take Kroger, for instance. Inflation-pinched customers are downloading more coupons, cooking meals at home and switching to lower-priced private label brands to save money, the grocery giant’s CEO, Rodney McMullen, told CNBC’s “Squawk on the Street” earlier this month.
“What customers are telling us, they’re already behaving like they’re in a recession,” he said.
Now, major retailers are dusting off their playbook for a recession — or at least for a period of slower sales. Companies previewed their strategies for the tougher backdrop in recent weeks, as they reported holiday-quarter earnings and shared full-year outlooks.
Target is bulking up on food and household essentials to drive foot traffic. Macy’s and Walmart are trying to win more sales from their most loyal customers. Best Buy and others are chasing new and exclusive products that may nudge customers to open up their wallets and even pay full price.
As the travel and restaurant sectors bounce back, it looks like the “rolling recession” is coming for the retail sector, even if the economy remains strong. Many retailers are calling for flat to declining sales this fiscal year, especially once the lift from inflation is taken out. It’s a sharp turnabout from the early years of the pandemic, which was a boom time for retail spending.
Here’s a look at some of retailers’ strategies.
Customers shop in the grocery area at a Target Corp. store in Chicago, Illinois, U.S., on Saturday, Nov. 16, 2019.
Daniel Acker | Bloomberg | Getty Images
Zeroing in on everyday items
Gallons of milk, paper towels and soap. Retailers are stocking up on those kinds of everyday products, which shoppers frequently replenish, as shoppers think twice about discretionary purchases.
Target, for instance, said it has intentionally skewed its inventory mix toward food and household essentials. Its overall inventory declined 3% year over year as of the end of the fiscal fourth quarter, but its inventory of discretionary merchandise dropped 13% during the same period.
Walmart, the country’s largest grocer by revenue, benefits from getting a larger chunk of sales from groceries. It has used lower-priced groceries to draw in shoppers across income levels, including more households with annual incomes of more than $100,000.
Yet selling evergreen items comes with a downside: They tend to be less profitable.
Walmart Chief Financial Officer John David Rainey acknowledged that on an earnings call with investors in late February, saying “product mix shifts have negatively impacted our margins.”
A shopper carries a Bloomingdale’s bag on Broadway in the SoHo neighborhood of New York, US, on Wednesday, Dec. 28, 2022.
Victor J. Blue | Bloomberg | Getty Images
Relying on loyal customers
As the going gets tougher, retailers are looking toward a familiar audience: Loyal shoppers.
Macy’s and Costco are among the retailers that want to wring out more sales from the tried and true. Some have even turned membership programs into money-makers. Walmart is trying to attract more customers to its subscription service, Walmart+, which costs $98 a year, or $12.95 on a monthly basis. Best Buy has the Totaltech program, which costs $199.99 per year. Lululemon has a free and a paid membership program, which debuted in the fall.
Costco, a membership-based warehouse club, is seeing more customers upgrade to Executive, its top-tier of membership. Chief Financial Officer Richard Galanti told investors on a call in early March that at the end of its most recent quarter, it had 30.6 million paid Executive memberships, which account for about 45% of overall paid members and drive about 73% of worldwide sales.
At Macy’s-owned Bloomingdale’s, members of its Loyallist program drove over 70% of same-store sales, which includes its own brands and third-party brands. Members of that program spent 7% more year over year, as of the end of Macy’s fourth quarter, CEO Jeff Gennette told investors.
Kroger’s McMullen said Wednesday at a Bank of America investor conference that its loyal customers tend to spend 10 times more than an occasional shopper. He said the company wants to get more of their dollars by getting “people into the rewards cycle” and better personalizing their experience.
Televisions are seen for sale at a Best Buy store in New York City.
Andrew Kelly | Reuters
Chasing newness and value
As customers become more cautious, retailers are racing toward the next hot thing or at least the thing that only they have.
Target anticipates modest or even declining sales in the year ahead, with same-store sales ranging from a low single-digit decline to a low single-digit increase for fiscal 2023. Even so, the discounter is pressing ahead with more exclusive items and flashy customer amenities. Target shoppers can soon get a Starbucks coffee, make a return and retrieve an online purchases without leaving their cars. The company is launching or expanding more than 10 private brands in the coming year, too.
“In an environment where consumers are making tradeoffs, more of the same is not going to get it done,” Christina Hennington, Target’s chief growth officer, said at an investor event in New York.
Value is a key part of retailers’ fresh offers. At Kroger, shoppers can find a new exclusive brand called Smart Way that offers basic groceries like sliced bread and mustard at the lowest price point.
And at Best Buy, CEO Corie Barry said innovation will help motivate shoppers to upgrade their phone or spring for new video game consoles, especially in the back half of the year.
“We believe there’ll be a desire to stimulate those replacement cycles going forward,” Barry said on a call with reporters in early March. “Obviously, our vendors are very interested in creating the next hot product and we are the best place — and really the only place — for them to highlight those new technology advances.”
Marko Geber | DigitalVision | Getty Images
Savvier about discounts
As sales dip, retailers want to make sure that every dollar counts.
Profit margins are getting more attention from investors, particularly as retailers follow a year when they were hit with higher costs for labor, commodities and shipping, all while taking a hit from marking down excess inventory.
Some retailers are rethinking their approach to discounts while questioning other costs, such as giving away free shipping or deliveries without strings attached.
Macy’s has gotten more strategic about pricing. Instead of marking down goods online and across every store, it can use dynamic pricing to adjust in places where that price change can make a difference. It can send targeted discounts to a particular shopper based on what he or she has browsed or bought.
On a call with CNBC, CEO Jeff Gennette said the company is “in the early innings of personalized offers, but there’s huge dividends for that.” He called it one of the company’s growth factors for the year ahead.
Some retailers have also turned free shipping into a perk for only engaged or higher spending customers. Nike, for instance, offers free shipping for shoppers – if they share their personal data by joining its membership program.
Amazon, a retailer often associated with no shipping and delivery fees, made a notable change recently, too. Starting in late February, the e-commerce giant began charging delivery fees for grocery orders under $150. It had previously offered free Amazon Fresh deliveries for Prime members who spent over $35.
Shares of the company soared more than 45% during after-hours trading.
For the quarter ended Jan. 28, net sales dropped slightly to $2.23 billion from $2.25 billion in last year’s fourth quarter. The video game retailer also posted a profit of $48.2 million, or 16 cents a share, compared to a loss of $147.5 million, or 49 cents, a year ago.
GameStop did not provide financial guidance and has not done so since the early days of the pandemic. Its results can’t be compared with Wall Street estimates because too few analysts cover the company.
The retailer had been working to steer itself back to profitability, and got there in part by cutting costs. Selling, general and administrative expenses came in at $453.4 million for the quarter, or 20.4% of sales, compared to $538.9 million, or 23.9% of sales, in the year-earlier period.
Scott Olson | Getty Images
CEO Matt Furlong said on an investor call the company is going into 2023 with further plans to cut excess costs including in European markets, where it has already exited and begun to pull out of some countries. He said that GameStop is also considering bolstering its business with higher margin categories such as toys.
GameStop had previously been riding some short-term, meme-stock momentum, but that has since leveled out and the company has made progress in right-sizing its business by cleaning up its inventory levels and reworking its cost structure.
The stock closed trading on Tuesday at around $18 per share, down dramatically from its 52-week high of nearly $50 about a year ago.
GameStop’s turnaround plan was reinvigorated by a leadership shake-up in 2021 that put Furlong, an Amazon veteran, at the helm and added Ryan Cohen, Chewy founder and former Bed Bath & Beyond activist investor, as board chair. The company also laid off staff and replaced its chief financial officer.
The retailer has been working to revamp its real estate portfolio and increase its online business as the video game industry heads in that direction.
For the full fiscal year, GameStop saw $5.93 billion in sales, down slightly from $6.01 billion in fiscal 2021, and saw increased revenues from its collectibles category, which the retailer is banking will promote long-term growth.
Like many retailers, GameStop experienced supply chain delays that left it with a backlog of inventory after it previously tried to meet high demand. The company is still hanging on to $682.9 million in inventory, which is down from $915 million a year ago, according to its fourth-quarter balance sheet.
As part of its revival strategy, GameStop also has been trying to improve its cash balance. This quarter, its cash and cash equivalents were $1.39 billion.
While managing the burdens of its brick-and-mortar presence, the company has also been working to find its digital identity. So far, those experiments have come with a few missteps.
In September, it launched an ill-fated partnership with the now-bankrupt crypto exchange FTX. The companies had planned to collaborate on e-commerce marketing and GameStop was going to sell FTX gift cards in its stores. Two months later, GameStop tweeted that it would be “winding down” the partnership and refunding anyone who had purchased an FTX gift card in its stores.
In addition, the company has been experimenting with an NFT marketplace since July. That launch came amid chatter of a “crypto winter” as cryptocurrencies experienced a widespread cooldown from their 2021 rallies. The marketplace saw an initial volume surge but has since leveled off and may not be the ticket to a stable digital presence the company had hoped it would be.
Still, Furlong said on a call with investors that compared to 2021, when many “predicted we were heading for bankruptcy,” the company is better positioned.
“GameStop is a much healthier business today than it was at the start of 2021,” he said.
Mike Segar | Reuters
Nike, like other retailers, has been in the process of offloading a glut of inventory brought on by supply chain disruptions and shifting consumer demands that’s been weighing on its margins.
related investing news
Gross margins were down to 43.3% for the quarter, a decrease of 3.3 percentage points, due to higher markdowns and promotions its used to liquidate its inventory.
While Nike CEO John Donahoe told investors last quarter he believes the company is past its inventory peak, the company warned gross margins were expected to take a hit during the holiday quarter.
Inventories were up 16% compared with the year ago period at $8.9 billion, which the company attributed to higher product input costs and elevated freight expenses.
Here’s how the sneaker giant performed in its third fiscal quarter of 2023 compared with what Wall Street was anticipating, based on a survey of analysts by Refinitiv:
- Earnings per share: 79 cents vs. 55 cents expected
- Revenue: $12.39 billion vs. $11.47 billion expected
The company’s reported net income for the three-month period that ended Feb. 28 was $1.2 billion, or 79 cents per share, compared with $1.4 billion, or 87 cents per share, a year earlier.
Sales rose to $12.39 billion, up 14% from $10.87 billion a year earlier.
Nike has been looking to see a sales rebound in China, its third-biggest market by revenue, as the region recovers from the Covid pandemic. But those hopes failed to materialize. Sales were down 8% in the region during the third quarter to $1.99 billion, despite the end of China’s zero-Covid policy that had weighed on operations.
Wall Street analysts had anticipated sales in the region of $2.09 billion, according to StreetAccount estimates.
Sales in China have been soft as consumers contended with sweeping lockdowns and rising infections. While some activity has begun to pick back up, consumers aren’t back to pre-pandemic shopping levels just yet, according to a Citi research note.
Outside China, Nike saw double-digit sales increases in all of its other markets. Sales in North America were up 27% and in Europe, Middle East and Africa, revenue jumped 17% compared with the year-ago period. In Asia Pacific and Latin America, sales were up 10%.
DTC
For the last several years, Nike has been working to build out its direct-to-consumer sales and has invested heavily in the channel by building out experiential stores, developing its loyalty program and growing its e-commerce sales.
The investments into its DTC channel has come at a cost, but sales have continued to grow. Nike Direct sales were up 17% during the holiday quarter to $5.3 billion and Nike digital sales jumped 20%.
Selling and administrative expenses were up 15% to $4 billion, the bulk of which was related to wage-related expenses and Nike Direct costs.
As part of its efforts to focus on DTC, Nike has ties with a host of wholesalers, and over the last two quarters has relied on those partnerships to offload inventory. Wholesale revenues were up 12% in the quarter, following 19% growth during the previous quarter.
On Monday, Foot Locker CEO Mary Dillon touted a “renewed” and revitalized relationship with Nike, its biggest brand partner.
Jeff Halstead | Icon Sportswire | Getty Images
Last year was transformative for women’s professional soccer, as Berman took the helm of an organization that had been plagued with problems ranging from accusations of emotional and sexual abuse and sexism, and an overall lack of confidence in the league.
The NWSL hired Berman, who was a labor lawyer at Proskauer Rose for 13 years, in March 2022, from her role as deputy commissioner of the Premier Lacrosse League. Her biggest priorities? Restore faith in women’s soccer and grow the business.
Since then, the commissioner has made changes to not only drastically transform the culture of the league but also supersize the business through its infrastructure, staffing and rules. Sports Business Journal named her the “Best Hire of the Year” for 2022.Â
It’s all led to a pivotal moment for the league, as it looks to add more teams and its media deal is up for grabs. Then, this summer, the FIFA Women’s World Cup will put the league’s talent on display – about 25% to 30% of NWSL’s players will travel to Australia and New Zealand for the tournament.
At the moment, the league has momentum. Berman told reporters Tuesday that business is strong and ticket sales are rising.
“Attendance and ticket sales are really the rocket fuel that will grow this league,” she said. “We’re up 20% in season ticket holders on a league-wide basis.”
Building on a strong year
More than 1 million fans attended matches last year, the league said, as nearly every market grew following the pandemic. Attendance was up about 80% in 2022, while ticketing revenue grew more than 125%, according to NWSL.
Sponsorship revenue also surged 87% last year, Berman said. The league averaged 37 sponsorship deals per team, which is more than any other women’s sport, according to sports data and intelligence platform Sponsor United. The league also plans to expand to 14 teams from 12 beginning next year.
The NWSL just signed a deal to bring soccer back to Utah with a new ownership group in a deal reportedly worth between $2 million and $5 million, a major bargain that had been part of a deal negotiated in 2020, before team valuations started to soar.
The league is also in advanced discussions to further expand in San Francisco for 2024, followed by Boston, which is launching “later,” both with a whopping $50 million franchise tag, according to The Wall Street Journal.
Women’s pro soccer valuations are also soaring. It used to take a few million dollars to get in on the league. Today, Angel City FC, based in Los Angeles, is valued at $100 million, according to Sportico.
NWSL commissioner Jessica Berman speaks during the 2023 NWSL Draft at the Pennsylvania Convention Center on January 12, 2023 in Philadelphia, Pennsylvania. (Photo by Tim Nwachukwu/Getty Images)
Tim Nwachukwu | Getty Images Sport | Getty Images
Athletes, celebrities and investors all want a piece of the action. Big name investors include everyone from Eli Manning, Kevin Durant, Sue Bird, Natalie Portman and Jennifer Garner.
“I think, if anything that we’ve learned in the last 11 months, which is that the market will tell us our value so long as we give it the appropriate opportunity to produce that value. And everything that I’ve seen, has validated that,” Berman said.
The league is busy looking for new ownership groups in Chicago and Portland after a yearlong investigation. Portland Thorns owner Merritt Paulson and Chicago Red Stars owner Arnim Whisler both announced in December, they would be selling their teams.
Berman said the vetting stages for new ownership groups in Chicago and Portland are in “advanced stages,” and they aren’t going to set an “artificial deadline.” She said it’s about putting the right person in place who is not just well resourced but also willing to invest in the club to provide a professional environment.
“The old ways of doing business are probably no longer applicable,” Berman said. “We’re not going to close deals in 30 to 60 days. We’re dealing with really sophisticated people who appropriately have questions,” she added.
Berman says they are not looking for the quick win when it comes to ownership, rather finding the right partner.
“We’re looking to go from a mentality of surviving to thriving,” she said. “I think all of that requires a changes in mentality, culture and expectations.”
As part of that transformation, Berman and the league are investing heavily.
The league recently moved its headquarters to Madison Avenue in New York from Chicago. It is also beefing up staff, doubling the number of people in the league office in order to support all the new initiatives they are working on. Berman said multiple teams have doubled or tripled their investment into staffing as well.
“These little things actually matter in terms of having people feel professional and valued,” she said.
In January, ahead of the NWSL draft, Berman outlined major updates to the salary cap. Each team will see a 25% increase from $1.1 million per year in 2022 to $1.375 million in 2023.
Media deal up for grabs
Viewership for NWSL matches also rose 30% last year on Paramount +.
Last year’s championship, which aired in primetime thanks to sponsor Ally Financial upping its financial commitment, was the most-watched game in league history, with a 71% increase in viewership. Paramount+ said it was the most streamed NWSL matched ever, even though it was up against Game 1 of the World Series and a college football game between rivals Michigan and Michigan State.
These metrics should come in handy as the league’s three-year, $4.5 million deal with Paramount Global, which also owns CBS, is set to expire at the end of the new season.
Berman said she’s had robust conversations about the rights, and said there are several interested parties.
“We think that there are some really interesting opportunities here and overseas to consider as we think about growing our brand globally and really claiming our space as the best league in the world,” she said.
The league also announced a recent partnership with EA Sports to feature NWSL players and clubs in EA Sports FIFA game for the first time ahead of a new season.
Culture change
OL Reign forward Megan Rapinoe (15) scores on a penalty kick during the second half of the National Womens Soccer League game between NJ/NY Gotham FC and OL Reign on September 21, 2022 at Red Bull Arena in Harrison, New Jersey.
Rich Graessle | Icon Sportswire | Getty Images
The NWSL’s culture is under the microscope, as well.
The league is implementing major reforms – from new mandatory training sessions, the addition of anonymous hotlines, player surveys, safety officers, mental health benefits and more.
The league was involved in a yearlong investigation after two former players came forward and accused longtime coach Paul Riley of sexual harassment. Sally Yates, a former top Justice Department official, conducted her own investigation, as well. The reports confirmed the allegations of systemic abuse, sexual misconduct and found “widespread misconduct” in more than half of the league’s teams.
Berman took swift action following the findings, making changes in personnel, putting new infrastructure in place to prevent future problems and issuing massive fines to the offending teams. The NWSL permanently banned Riley and three other coaches who were accused of misconduct. Riley has denied the accusations.
“The teams are really welcoming of the increased focus and support in this area knowing that it is really sort of table stakes as we think about the growth of the league,” Berman said.
Berman spent much of her first year as commissioner on a “listening tour,” meeting with players, coaches and executives to hear “first-hand experiences” and what needs to change.
Today, Berman hopes the new changes and protections will position the league for success.
Berman said she’s heard from players that they are tired from the burdens of having to carry some of weight of culture challenges and reforms.
“I think it’s their hope that we the league and through ownership and management can really take on the burden and work behind the scenes to offer the playing environment that meets the standard that I’ve committed to, which is a place that makes the players proud to play,” Berman said.
Odisha: Opposition objects to Naveen Patnaik reading out speech while replying to debate in Assembly
Railways lowers fare of AC-3 tier economy ticket, check details
Australian Banks Ordered to Report Crypto Transactions
Walmart-owned Sam’s Club plans to open about 30 new stores over next five years
22/7 Project’s Reina Miyase Graduates From Franchise
NBUniversal expects Peacock losses to peak this year as streamer slowly adds subscribers
Watch: Bride Arrives At Wedding Venue In Madhya Pradesh Driving Tractor
In September 2022, ‘The Lord of the Rings: Gollum’ will be released for PC, PS5, and Xbox Series X.
Dhaakad Day 1 Box Office Report: Kangana Ranaut’s film debuts poorly in front of Bhool Bhulaiyaa 2 by Kartik Aaryan.
-
Entertainment2 months agoFake heiress Anna ‘Delvey’ Sorokin, while on house arrest, to star in new reality show – National | Globalnews.ca
-
Tech2 months agoTesla shares pop on ‘better than feared’ earnings results, demand outlook
-
Crypto2 months agoTesla refuses to sell any more Bitcoin
-
Business2 months agoSouthwest forecasts lingering losses as bookings slow in wake of holiday meltdown
-
Anime & Manga2 months agoStoneBot Comics Provides Statement on Kamen Rider Kuuga Manga’s Translation Differences from Initial Preview
-
Odisha News2 months agoPolice Medals: 34 Odisha Police personnel awarded on Republic Day
-
Politics2 months agoChhattisgarh CM Bhupesh Baghel announces unemployment allowance
-
Fashion2 months agoRobert Wun Couture Spring 2023
You must be logged in to post a comment Login
You must log in to post a comment.