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In the midst of a holiday season where forecasts are typically coming with the words “conservative” and “uncertainty” attached, Lululemon had more positive color for its initial results.
“Black Friday was the biggest day ever in our history in terms of revenue and traffic driven by our results in both North America and around the world, with guests responding well to the innovation we offer across our product assortment,” Lululemon CEO Calvin McDonald told analysts on the company’s third quarter earnings call. “We also recognize that the external environment remains challenging with several high-volume weeks still in front of us. That being said, I'm encouraged with the beginning of our holiday season and I am confident in how our brand is positioned in the near and long term.”
The Black Friday record followed a third quarter in which Lululemon posted strong results:
- Net revenue increased 28% over Q3 2021.
- Total comparable store sales increased 22% year-over-year.
- Direct-to-consumer revenue increased 31% year-over-year, representing 41% of net revenue.
To be sure, Lululemon is facing the same headwinds from inflation and interest rates as others. The company’s forecast for the overall holiday quarter was lower than Wall Street expected and its gross margins are proving to be tough to maintain at a time of inflation. This sent its stock price down about 12% on Friday morning, according to Yahoo Finance.
Yet the performance in Q3 and the opening to the holiday suggests that the company is able to deliver solid results at a time when many specialized retailers are seeing consumers pull back from discretionary spending and seek out deals in a highly promotional environment.
McDonald summed up the reasons for the strong showing this way: “Great products, regular price is still selling, driven off of the uniqueness of the overall brand and position in the market.”
Yet it’s also worth paying attention to how the brand operates across its stores and ecommerce operations.
“In my opinion, the brand’s ongoing investments in omnichannel capabilities are a key factor here,” said Rick Berger, president of omnichannel shopping platform NewStore, in a statement. “By offering features like buy online pick up in-store [BOPIS], making inventory information available online, and offering in-store shopping appointments, Lululemon has set itself apart, allowing its customers to buy products, when, where and how they want.”
Despite how often they are talked about in retail circles, these elements of the shopping experience that cross physical and digital channels have yet to achieve wide adoption across retail. NewStore’s research shows that 54% of brands provide BOPIS, while fewer still provide real-time inventory visibility (31%) or one-on-one appointments (25%).
“If Lululemon continues to double down on omnichannel experiences for its shoppers, the company is in a great position to close out the year and hit its Q4 goals,” said Berger.
Here’s a look at perspective that other retail executives shared in this week’s earnings calls about trending holiday shopping topics:
More Black Friday records
Costco CFO Richard Galanti said Black Friday and Cyber Monday were the two largest ecommerce selling days in the wholesale company’s history. This, despite ecommerce sales of consumer electronics and appliances being down in the “high single digits” for Q3.
With higher prices for gas and food amid inflation, consumers are on the lookout for deals. This was forecast to have an impact on the holidays, and observations from executives like Vera Bradley CEO Robert Wallstrom are baring it out.
“We saw weakness in October, and as we got towards Black Friday, we saw the consumer begin to pick up during Black Friday and that momentum has continued past Black Friday,” said Wallstrom. “What we have definitely seen, though, is the importance of promotional activity as part of that stimulation, that the consumer definitely is looking for the deal, is kind of returning to that historical Black Friday mentality.”
Many retailers are calling the holiday season highly promotional, but that’s not necessarily true across categories, said Sumit Singh, CEO of pet product ecommerce service Chewy.
“Compared to Q3, the promotional environment is elevated in Q4. This is the normal seasonal pattern we see every year heading into the holidays,” Singh said. “But within the context of Q4 itself, we believe the promotional environment remains rational and more or less in line with what we have seen in previous holiday periods.”
Impact of early holiday events
Larger retailers sought to get the holidays off to a big start with deal events in October. This also had the effect of introducing deals into the marketplace earlier in the season, which has impact on the specialty retailers in ecommerce that typically stick to full-price, said Elizabeth Spaulding, CEO of styling service Stitch Fix.
“In fiscal Q1, the retail industry experienced a meaningful pull forward of the holiday promotional environment, which continues to be more pronounced than expected due to weak consumer sentiment and excess inventories,” Spaulding said. “We believe this resulted in lower client spending and also had a large impact on our net active clients, which declined 11% year over year.”
Stitch Fix is experimenting with limited-time promotions as it seeks to move inventory and lift slumping sales. It is seeing a “halo effect” for full-price merchandise by taking this approach, Spaulding said. But it must weigh how making items available at a lower price impacts the brand.
“We had our first Black Friday-Cyber Monday event, which we saw good lift in terms of what we were able to offer our clients in that window,” Spaulding said. “But I think we really want to strike a good balance of being levant in those seasonal time periods, but ultimately do what we do best, which is differentiating based on style, discovery, fit.”
A late finish
While early deals and big cyber weekend events are shaping the season so far, there could still be a strong finish for the taking, as well. When people are stretching their wallets and holding out for deals, last-minute shopping could be even more active than usual. Signet Jewelers is seeing both sides, said CEO Gina Drosos.
On Black Friday-Cyber Monday, “We saw omni traffic up double digits, so a lot of people in stores but a lot of people online. And we saw our online revenue up mid single digits, so that was great that we see people buying at the time,” Drosos said. “But a lot of people, we see browsing, and they'll be waiting, we think, until later in the season, making sure they get the very best value that they can.”
Trending in Operations
Campbell Soup Company CEO Mark Clouse offered thoughts on messaging amid inflationary shifts in consumer behavior.
After months of elevated inflation and interest rate hikes that have the potential to cool demand, consumers are showing more signs of shifting behavior.
It’s showing up in retail sales data, but there’s also evidence in the observations of the brands responsible for grocery store staples.
The latest example came this week from Campbell Soup Company. CEO Mark Clouse told analysts that the consumer continues to be “resilient” despite continued price increases on food, but found that “consumers are beginning to feel that pressure” as time goes on.
This shows up in the categories they are buying. Overall, Clouse said Campbell sees a shift toward shelf-stable items, and away from more expensive prepared foods.
There is also change in when they make purchases. People are buying more at the beginning of the month. That’s because they are stretching paychecks as long as possible.
These shifts change how the company is communicating with consumers.
Clouse said the changes in behavior are an opportunity to “focus on value within our messaging without necessarily having to chase pricing all the way down.”
“No question that it's important that we protect affordability and that we make that relevant in the categories that we're in," Clouse said. "But I also think there's a lot of ways to frame value in different ways, right?”
A meal cooked with condensed soup may be cheaper than picking up a frozen item or ordering out. Consumers just need a reminder. Even within Campbell’s own portfolio, the company can elevate brands that have more value now, even if they may not always get the limelight.
The open question is whether the shift in behavior will begin to show up in the results of the companies that have raised prices. Campbell’s overall net sales grew 5% for the quarter ended April 30, while gross profit margins held steady around 30%. But the category-level results were more uneven. U.S. soup sales declined 11%, though the company said that was owed to comparisons with the quarter when supply chains reopened a year ago and expressed confidence that the category is seeing a longer-term resurgence as more people cook at home following the pandemic. Snacks, which includes Goldfish and Pepperidge Farm, were up 12% And while net sales increased overall, the amount of products people are buying is declining. Volumes were down 7%.
These are trends happening across the grocery store. Campbell is continuing to compete. It is leading with iconic brands, and a host of different ways to consume them. It is following that up with innovation that makes the products stand out. Then, it is driving home messaging that shows consumers how to fit the products into their lives, and even their tightening spending plans.
Campbell Soup is more than 150 years old, and has seen plenty of difficult economic environments. It is also a different business today, and will continue to evolve. At the end of the day, continued execution is what’s required.
“If it's good food, people are going to buy it, especially if it's a great value,” Clouse said.