Glamorous makeup and costumes return, boosting Macy’s and Ulta

A Nordstrom employee fixes a floral dress on a mannequin in one of the retailer’s department stores.

Ben Nells | Mayor Bloomberg | fake images

Outside the sweatpants, inside the jackets, the lipstick and the striking prints on the dresses.

Americans are sprucing up their wardrobes and spending more on fancier clothes, makeup and accessories as they start going out more and venturing back into the office. The trend is particularly pronounced among higher-income shoppers who are eager to splurge on those items again, even amid runaway inflation and an uncertain economy, analysts and company executives say.

“The masks are coming off,” Macy’s CEO Jeff Gennette said after the company raised its earnings outlook and maintained its sales guidance for the year on Thursday.

The sentiment was echoed by a host of other retailers reporting quarterly results this week, including makeup and beauty chain Ulta Beauty and Anthropologie’s parent company Urban Outfitters. People are paying to look their best when they leave home again, they said.

The latest round of earnings offers a more nuanced look at the economy after two of the biggest retailers, Walmart and Target, sent shockwaves through the market with dovish forecasts and warnings that some shoppers are becoming more sensitive to prices. prices amid decades of high inflation.

Rising food and gasoline prices are hitting low-income Americans who are cutting back on spending, executives say. But so far, even the threat of a potential recession hasn’t stopped higher-income consumers from spending on items that were lost during the early days of the pandemic.

‘Colorful suits from head to toe’

At Macy’s, Gennette said shoppers are increasingly spending “hours” browsing stores, especially in urban markets like New York. A year ago, she said people were more likely to come and go.

“The luxury customer is back in a big way,” he said in a telephone interview.

But Gennette noted that buyers earning less than $75,000 a year are looking for more discounts.

The behavioral divide also seems to be happening at Urban Outfitters. The company’s Anthropologie chain, which is known for its fun dresses and caters to higher-income consumers, saw sales increase 18% in the quarter. At his namesake chain, which caters to younger shoppers on their first or second jobs, sales were up just 1%.

“A kind of fork has occurred,” Urban Outfitters CEO Richard Hayne said in a conference call Tuesday night.

But even shoppers trying to economize may be willing to shell out for items like shirts or handbags they covet, especially if they think a store is running out of stock, according to a retail expert.

“It’s a mindset. It’s a psychology: ‘I want to go do things and I need new things to wear,'” Jan Kniffen, CEO of retail consultancy J Rogers Kniffen Worldwide, said 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 that different in quality from name brands: “Substitution is very easy in the grocery space,” he said.

Makeup chain Ulta Beauty also easily beat Wall Street sales expectations this week, with shoppers snapping up pampering items and dressing up for social gatherings. The company raised its full-year outlook after first-quarter sales rose 18% at established locations from a year earlier.

“There are new trends coming into makeup that we’re excited about, definitely a push towards bold, bright, glamorous, sparkly looks,” said Ulta CEO Dave Kimbell. “People are ready to go out into the world and it shows in the way they look.”

Kimbell said that makeup is considered an affordable luxury even when people have tighter budgets. Clothing retailer Express is also benefiting from people’s enthusiasm to go out and dress again, with same-store sales up 31% in the quarter.

“One of the biggest trends in women’s fashion right now is colorful head-to-toe suits,” Express CEO Tim Baxter said in a phone interview. “We haven’t been in that kind of fashion cycle in a long time.”

Hectic environment for some

Changing behaviors mean retailers selling more casual clothing such as pajamas and tracksuits could now be hurt more than rivals after seeing a surge in sales as people huddled at home.

Some are now carrying inventories of pandemic-ready clothing that were stocked when people sought comfort above all else. Those items could eventually need a deep discount.

American Eagle said on Thursday that demand in the first quarter was “well below” its expectations and cut its profit forecast for the year. Inventory increased 46% from the previous year. The company’s Aerie division sells casual wear, sportswear, and lingerie for teens and younger women.

Abercrombie & Fitch also said inventory was up 45% in its fiscal first quarter from a year earlier and cut its sales forecast for the year. And Gap’s first-quarter sales fell, dragged down by Old Navy.

“Last year, we won a lot with Active and Fleece, and Kids and Baby, which is our sweet spot for Old Navy,” Gap CEO Sonia Syngal said in a phone 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, with the company cutting its 2022 profit forecast. Only its Banana Republic chain, which caters to a higher-income customer, reported an increase in same-store sales.

At an Old Navy store Syngal visited recently, where the median income in the area is about $100,000, he said shoppers’ behavior hasn’t changed much. But elsewhere where the median income in the area was around $50,000, he said the financial pressures are clear.

“There’s a lot more focus on value for money,” he said, adding that people don’t come as often either.

Stacey Widlitz, president of retail consultancy SW Retail Advisors, said the mixed results in the industry reflect how the economy is affecting people as they emerge from the pandemic.

“It is a change in spending. It is a behavior change. And it’s affecting different companies differently,” he said.

—CNBC Melissa Repko contributed to this report.

Add Comment