Could Maxxinistas be the most important consumers in fashion?
This week, TJX Cos, the Massachusetts-based parent company of T.J. Maxx and its UK counterpart T.K. Maxx, as well as Marshalls, raised its outlook for the 2024 fiscal year, after US sales of apparel and accessories rose 8 percent in the second quarter, and international sales rose 3 percent. The results sent TJX shares soaring to an all-time high, and its market capitalisation above $100 billion for the first time (the company is now worth more than Kering and H&M Group combined). Similarly, Ross Stores, one of TJX’s primary competitors, beat expectations, reporting revenue of $4.9 billion. The company raised guidance for its second half accordingly.
It wasn’t so long ago that brands on the opposite end of the pricing spectrum had the wind at their backs. Until this year, luxury labels like Louis Vuitton and Prada were growing sales at a blistering pace, particularly in the US. This was a sign of a booming economy, with wealthy consumers splurging on new wardrobes during the pandemic and aspirational shoppers putting some of their stimulus checks toward handbags and shoes.
Now, the luxury hangover has set in, and it’s off-price retailers’ time to shine. While the US, the UK and other major markets have avoided a much-feared recession, there’s no denying that high-interest rates and inflation are forcing many consumers to get pickier about where they shop. Data from Placer.ai shows that visits to off-price stores this year are outpacing the rest of the apparel segment.
When off-price is on the upswing, it’s often at the expense of the rest of the fashion industry. This moment is no exception: Ralph Lauren saw its second-quarter sales come in below expectations, which it attributed to weaker demand in the US market. This week, Coach’s parent company Tapestry forecasted a slower 2024 for the same reasons. It’s even impacting major luxury players like Kering, which saw its sales rise by just 1 percent in the first quarter, compared to 2 percent growth during the same period the year prior.
The success of off-price makes for a particularly interesting case study because the way they operate is so different than the conventional wisdom around modern retail would recommend.
These retailers remain firmly committed to brick-and-mortar: e-commerce is barely a blip at 3 percent of TJX’s overall sales in 2022. At first glance, T.J. Maxx and Ross don’t provide a particularly compelling retail experience. Their stores’ layout and design appear almost untouched from a decade (or possibly decades) ago, featuring utilitarian floors and standard-issue clothing racks and shelves bearing a mishmash of often haphazardly displayed clothing, bags, shoes and accessories.
But that slightly messy, often overwhelming vibe is key to these stores’ appeal. The off-price experience is all about the “treasure hunt,” as TJX Cos. chief executive Ernie Herrman likes to say. Going to an off-price store like T.J. Maxx, sister store Marshalls, Ross Stores, or outlets like Nordstrom Rack and Saks Off Fifth offers the promise of a blink-and-you’ll-miss-it find, a deal worth bragging about to your friends and family.
In other words, it’s experiential retail, the low-rent version of Off-White’s beachside pop-up in Ibiza, or Louis Vuitton’s “200 Trunks” exhibition.
It’s a concept that appeals to a wide variety of shoppers — no matter their income level, everyone enjoys the thrill of discovering a good deal. TJX’s scale allows it to maintain a nimble supply chain, ensuring constant newness in each store with multiple shipments a week. Each location is also given the freedom to uniquely merchandise for its particular clientele. All of these factors give shoppers a reason to make repeat visits.
“We are convinced that our differentiated treasure hunt shopping experience and excellent values will continue to serve us well and allow us to capture additional market share across our geographies for many years to come,” Herrman said on this week’s earnings call.
Of course, off-price chains wouldn’t have an endless stream of new merchandise if the rest of the industry were better at inventory planning. In many ways, the rise of these retailers is a symptom of the decline of traditional department stores. Why go to Macy’s for full-price merchandise when you can get the same thing at T.J. Maxx for less a few weeks later? At this point, it would be difficult to win those customers back, now that they’ve been trained for decades to wait for discounts by off-price chains, and often the full-price retailers themselves.
Still, what off-price ultimately delivers on is the practice of shopping as an enjoyable experience. It’s a concept that existed before the pandemic, but has gained new importance as the e-commerce boom fades and consumers return to physical stores.
As the success of T.J. Maxx and Ross shows, experience isn’t necessarily about Instagram-worthy displays or champagne-fuelled events — rather, it’s about infusing shopping with a sense of fun, rather than making it just another box to check on a to-do list.
THE NEWS IN BRIEF
FASHION, BUSINESS AND THE ECONOMY
Farfetch reports disappointing sales and lowers its sales outlook for the full year by $500 million. The e-tailer’s revenue dropped 1 percent in the second quarter from a year earlier to $572 million, falling short of the average analyst forecast of $650 million. The decline was led by a more than 40 percent year-on-year sales slump at its brand incubator platform, New Guards Group.
Coach parent Tapestry forecasts weak fiscal 2024 profit and sales on soft US demand. In the fiscal fourth quarter, revenues from Tapestry-owned brands like Kate Spade and Stuart Weitzman dropped 10 percent and 13 percent over the last year, while sales of Coach grew 5 percent over the quarter, as increased cost of living and still-high inflation pressure American budgets.
Canada’s corporate watchdog probes Ralph Lauren on alleged use of forced labour in China. The Canadian Ombudsperson for Responsible Enterprise published a report detailing allegations that Ralph Lauren had supply relationships with Chinese companies that use or benefit from Uyghur forced labour. In July, CORE launched similar investigations into Nike Canada and Dynasty Gold.
H&M says it will ‘phase out’ sourcing from Myanmar after launching an investigation into alleged labour abuse. The retailer became the latest brand to cut ties with suppliers in the country, following Zara owner Inditex, Primark, Marks & Spencer and others. The Swedish fast fashion giant is investigating 20 alleged instances of labour abuse at its Myanmar suppliers.
Parade was acquired by intimates company Ariela & Associates International. Terms of the acquisition were not disclosed, though founder Cami Téllez confirmed she’d be leaving the brand. The Gen-Z intimates brand’s new parent is best known for owning the licence to Fruit of the Looms’ bra line.
Running brand On says strong franc is weighing on sales growth. The Roger Federer-backed company nudged its full-year sales guidance higher to at least 1.76 billion francs ($2 billion) on Tuesday. Analysts are expecting 1.78 billion francs. The stock fell as much as 13 percent in New York, reducing the company’s market below $10 billion.
Harrods bounces back after the pandemic hit as big spenders return to London. The department store saw profits hit £171.6 million ($217.9 million), and sales increased 52 percent to £994 million in the year to January 2023.
Target sees profit boost on fewer discounts; pride backlash hurts sales. The retailer cut its full-year sales and profit expectations even as its quarterly profit exceeded Wall Street estimates, as it benefitted from fewer discounts and better-stocked store shelves. Target’s second-quarter sales, however, dropped 5 percent, partly due to the fallout of a backlash against its Pride merchandise in June.
T.J. Maxx parent lifts annual forecast on demand for discounted apparel. Signs of cooling inflation have boosted demand at off-price retailers such as TJX. US comparable sales at the company’s apparel and accessories segment Marmaxx rose 8 percent in the second quarter. TJX was also supported by a rebound in demand at its HomeGoods outlets, where comparable sales rose by 4 percent.
Peter Do to collaborate with Banana Republic. New York-based designer, who was tapped in May to be the creative director at Helmut Lang, has designed a capsule collection for Banana Republic featuring a range of knitwear, outerwear and silk shirting, which will launch in October.
Uniqlo taps Clare Waight Keller for fall capsule. The former Givenchy artistic director’s collection, dubbed Uniqlo: C, will be available to purchase in mid-September. Uniqlo has released a number of collaborations with top designers in recent years, including multiple collections with Marni and J+, a sub-label with German designer Jil Sander.
As World Cup breaks records, Adidas and Nike navigate bumps in retail demand. Adidas and Nike and retailers like Dick’s Sporting Goods and Fanatics have made significant investments in World Cup-related merchandise. Total sponsorship value grew to at least $349 million, from $342 million in 2019, according to GlobalData, with many brands aligning themselves with themes of women’s empowerment.
Pandora lifts outlook as jeweller pushes lab-grown diamonds. Full-year sales should increase as much as 5 percent, the company said Tuesday, reporting second-quarter earnings that beat analysts’ estimates. The stock rose as much as 3.7 percent.
Marks & Spencer raises profit outlook after strong trading. The British retailer, whose shares have risen 66 percent so far this year, said it now expected profit growth in its full 2023-24 year, having previously forecast a small decline. Its shares jumped 8 percent.
Strong US retail sales underscore the economy’s resilience. US retail sales increased more than expected in July as Americans boosted online purchases and dined out more. The economy grew at a 2.4 percent pace in the April-June quarter and keeping the recession at bay.
THE BUSINESS OF BEAUTY
Estée Lauder forecasts weak annual profit on slow recovery in Asia travel retail. Shares of the company were down 6 percent in premarket trade. Estée Lauder expects full-year sales to rise between 5 percent and 7 percent, compared with analysts’ estimate of an 8.8 percent increase, according to Refinitiv data.
Brazil’s Natura sees a cash boost later in the year following Q2 loss. The Brazilian cosmetics maker expects its accounts to improve in the second half of the year after a soft start to 2023, with a cash boost scheduled from the sale of its Aesop brand and strategic changes. Natura posted a net loss of 732 million reais ($147 million), narrowing its year-ago loss, but the company said it still faces “high financial expenses.”
Megha Kapoor is exiting Vogue India. Kapoor took up the top editorial job at Vogue’s Indian edition in September 2021 after the ousting of founding editor Priya Tanna as part of a major restructuring at parent company Condé Nast.
Harvey Nichols CEO to step down. Pearson Poon, the luxury department store’s executive director has been promoted to vice chairman and will lead the business until the former CEO Manju Malhotra’s successor has been appointed.
Craig Green named fashion design professor at the University of Applied Arts Vienna. The British menswear designer joins a long list of globally renowned talent to have taught at the school. Karl Lagerfeld, Vivienne Westwood, Helmut Lang and Raf Simons are among the designers that have held professorships since the 1980s.
MEDIA AND TECHNOLOGY
Threads app usage plummets despite initial promise as a refuge from Twitter. Engagement with the social media app is down 79 percent from a high of 2.3 million active users in early July to 576,000 as of August 7, according to Similarweb, a digital intelligence platform.
Personal shopping platform In-Seam secures $2 million in funding. The funding round was led by early-stage venture fund Far Out VC. The e-commerce platform allows stylists and personal shoppers to serve their clients more than 100 brands on one interface.
Tencent revenue disappoints in a warning for China tech sector. The company reported a less-than-expected 11 percent rise in revenue after sales from major divisions fell well short of projections, signalling an uneven recovery for the world’s biggest internet arena as it grapples with rising Chinese economic turbulence and anaemic consumer sentiment.
Compiled by Sarah Elson.
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