Target, Kohl’s, Gap, and Target are reporting quarterly profits. Investors will be listening to company executives about managing inflation, rising prices, and supply chain issues. Investors will also be interested in the strategies of companies to keep consumers, who have so far shown little desire to stop shopping at their stores.
Target reported Tuesday morning with quarterly earnings that exceeded Wall Street’s expectations. Target CEO Brian Cornell stated that the company is expecting growth in its second year of supercharged, pandemic-driven sales. This comes despite higher food, fuel, and other products prices.
He said that consumers are looking for value, but also newness and experience. While there is no doubt that consumers are concerned about inflation, they have a healthy balance sheet.
Target also stated that it will expand its grocery business.
Last week’s quarterly report by Walmart, second-largest retailer in the country, was also a surprise. Target took a leaf out of Target’s book and unveiled Brandon Maxwell’s first spring collection. Maxwell, who has been a judge for “Project Runway”, is most well-known for dressing celebrities such as Lady Gaga or Meghan Markle in expensive designs. Maxwell was appointed the creative director of Walmart’s Scoop brand and Free Assembly brand in spring.
These lines were made available in around 20 percent of Walmart’s 4,700 U.S. locations last week. They are part of Walmart’s push for younger, hipper shoppers, who are as interested in Instagram posts as they are in buying bargain socks and T-shirts.
Bryan Eshelman is a managing director of AlixPartners’ retail practice. He said, “Collaborations such as this are a good strategy, and other retailers see success with them.”
Target is the most well-known of these retailers. Target’s 20-year-old collaborations with Jason Wu, Proenza Schouler and other top-name designers has earned it a reputation for affordable chic.
Walmart’s Maxwell partnership goes beyond fashion. Walmart is a supermarket chain. Last year, 56 percent of Walmart’s annual revenue totalled $572 billion came from grocery sales. Eshelman stated that grocery sales are a low-margin industry.
Retailers can’t push extra costs onto customers if food prices have risen 7.4 percent in the past year. Eshelman stated that apparel and other categories offer “a little more headroom” for companies’ profit margins.
Scott Cicarelli, a Truist Securities retail analyst, said that “no one says that shirt must be $50 or $40.” “The customer doesn’t know it’s exclusive and new, so there’s the chance to make more margin.”
Retail analysts estimate that the average markup for private-label apparel is between 200 and 250%. A blouse that costs $10 to make would cost $12 to purchase by a retailer, and $13 to sell to the consumer. The retailer then sells it to consumers for $24 to $39. Wholesale costs will likely be lower for a company like Walmart which has a huge influence over its suppliers.
Walmart’s Maxwell line, which includes hundreds of items priced from $8 to $75, is positioned to capture dollars from low and middle-income shoppers. These shoppers may have previously come to Walmart for groceries but feel squeezed by rising gas prices and so decide to shop for clothing.
Eshelman stated that “Covid-19” will hopefully become an endemic and not a pandemic. People will start to refresh their wardrobes. They will see a tailwind from Walmart’s position as a price leader, which will allow them to be more affordable.
Walmart has been successful in basic apparel, but has not made a significant impact on fashion. It acquired the men’s wear brand Bonobos in 2017 and the women’swear brand MODCLOTH in 2017. It launched a range of exclusive apparel brands in-house and purchased Eloquii, a plus-size womenswear brand. ModCloth was sold by 2019 and Bonobos had been reduced.
Michael Prendergast (managing director of Alvarez & Marsal Consumer and Retail Group) said, “They had a fantastic distribution network.” “While the prices were very competitive, the value of the product was not equal to the price. Some items felt cheap.”
Gwendolyn, a 26 year-old college student from Santa Clarita, California has been shopping with Walmart for over 10 years. She said that she has stopped shopping at Walmart since she bought a pair of jeans that ripped when she washed them, and she also purchased workout clothes that quickly stretched.
She said that the quality was not the best. “I like the way they design clothes but it doesn’t make them last very long.
Jaeme Laczkowski, a Walmart spokesperson, told NBC News via email that Walmart stands “behind quality of our private brands.” He also said that Walmart uses product reviews to improve its products and inform its development processes.
Experts in retail say that quality could be a bigger issue because apparel prices have risen 5.4 percent in January according to government data. This leaves consumers with less discretionary income.
Cranert stated that she now shops at American Eagle Outfitters and JCPenney, as well as Amazon. She hasn’t ruled the possibility of shopping at Walmart for Maxwell collections. She is still waiting on the reviews.
She said, “The reviews would need to be four- to five stars about quality.” I like clothes that last a long while. This way, I don’t have the need to spend more on clothes that shouldn’t be there.
