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Economy
03 March
Retail CEOs see 'conflicting' signals on the US consumer to start 2023
Leaders of Macy's, Best Buy and Abercrombie offer takes on the latest economic data.

The state of the U.S. consumer is…difficult to discern.
Retailers and economic data alike are painting a mixed picture of consumer demand to start 2023. Optimists and pessimists can each find reason to back up their case. Inflation and interest rates are converging to make consumers think twice about buying, but the job market remains strong, providing reliable funds to make purchases.
The latest data point to arrive this week was mostly on the gloomy side. The Consumer Confidence Index showed a decline for the second straight month in February, falling from a downwardly revised 106 in January to 102.9.
“While 12-month inflation expectations improved—falling to 6.3 percent from 6.7 percent last month—consumers may be showing early signs of pulling back spending in the face of high prices and rising interest rates,” said Ataman Ozyildirim, senior director of economics at The Conference Board. “Fewer consumers are planning to purchase homes or autos and they also appear to be scaling back plans to buy major appliances. Vacation intentions also declined in February.”
This pullback on bigger purchases is extending to all discretionary spending. As they make plans to reach consumers who may be thinking twice, retailers are parsing through “conflicting data,” as Macy’s CEO Jeff Gennette put it.
“On the surface, the consumer is in better shape than 2019,” Gennette told analysts this week. “Jobs and wages are strong, and savings levels are elevated relative to historic levels. But prices for services and goods are higher. Inflation has surpassed wage growth, and revolving credit is rising....but we believe discretionary spend will be under pressure across income tiers and expect the allocation of disposable income to continue shifting toward services and essential goods.”
Certain categories that were winners in the pandemic could see a sharp decline. Best Buy is expecting comparable sales to decline 3-6%, with the toughest period coming in the first quarter. The pullback in discretionary spend comes after a pandemic lockdown period in which many people updated their technology, as they had extra money to spend on goods from a combination of stimulus and curtailed social activities.
CEO Corie Barry laid out the data this way: “Historically strong job markets, spending continues specifically on services, even moreso than goods. Inflation might be slowing, but it still is [un]sustainably high, and it's high in some of the basics like food, fuel, and lodging.”
It all adds up to a consumer that is making tradeoffs.
“You've got an uneven and unsettled consumer who, from a confidence perspective, looking forward, is still not confident about the future,” Barry said.
Consumers may be pulling back, but they are not stopping spending altogether. There is still success to be had, but it requires being mindful of the environment and the mood. After besting its own outlook to deliver 3% net sales growth in the holiday quarter, Abercrombie & Fitch remains “cautiously optimistic,” said CFO Scott Lipesky, primarily because the job market remains strong. Yet plenty of uncertainty remains.
“On the consumer demand side, we're always looking at employment levels as well as wage levels,” Lipesky said. “Both of those things remain very strong, and that's very helpful for our customer on the discretionary side. When you think about some of this cautious optimism, we don't know what the Fed is going to do here in the U.S. and how that's going to kind of ripple through the economy as we go throughout the rest of the year. And as you watch TV or read the news every day, depending on how the winds blow, it's good or bad. So we'll see.”
Opportunities: Loyalty and occasions
Not every macro trend is a negative. After the return to in-person activities in 2022, a full year of events and trips in 2023 will likely lead to more spending.
“Even as consumers reprioritize spend, there is opportunity,” Macy’s Gennette said. “With the continued expansion of a hybrid work model, there are more in-person meetings and flexibility for personal travel. We believe the desire to be with loved ones, go on vacation, and attend events has not diminished, and expect gift-giving and occasion-based demand to continue.”
Retailers are also finding success in returning to their best customers. American Eagle Outfitters grew its loyalty file in 2022, putting a focus on bringing back the consumers who had already made the choice to spend with the apparel retailers’ brands.
“They come back the most to our brands, and we want more of those customers,” said American Eagle and aerie CEO Jen Foyle. “So that's why we're just incredibly focused on our loyalty program, and you'll see more. Now, we have some really great findings on how we can even build that program stronger and better.”
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Brand News
17 March
New Honest CEO plans to apply Amazon experience to ecommerce
Carla Vernón is also bringing learnings from General Mills to the brand's category strategy.
Photo by Flickr user Abi Porter, used under a Creative Commons license.
The Honest Company’s new CEO is eyeing upgrades to the brand’s ecommerce strategy, and considering category expansion.
Carla Vernón joined Honest in December, bringing experience as VP of consumables categories at Amazon and leader of recognizable brands such as Cheerios, Annie’s and Nature Valley for General Mills.
Vernón will now marry the commerce acumen she built with those companies to a premium brand that is driven by purpose. Founded by Jessica Alba in 2012, the digitally-native Honest makes products in personal care, beauty, baby and household products. The company has taken off in the baby category, as 60% of revenue came from diapers and wipes in the fourth quarter.
“Honest is a brand built on a number of values... clean formulations, high-quality ingredients and input, products where you can believe the quality is worth the value that you are paying for them,” Vernón said on the company’s earnings call to recap the fourth quarter and full-year of 2022.
Vernón said the brand has “unique DNA,” in that it was built by “thoroughly modern” entrepreneurs that typically speak to a younger set, but cuts across demographic lines. That can set up expansion into new categories.
“Honest is a brand that needs to speak to all consumers, all demographics, all cultural groups, all life stages,” Vernón said. “I am extremely confident that the shoulders of Honest are broad, that the shoulders of Honest are strong to bear the weight of many categories and that there are categories waiting for Honest values to come in and energize the category and change what consumers think they can expect from the category.”
This will require a balance: Honest wants to be thoughtful about where the brand can “lead, innovate and win,” Vernón said.
“We exist to push our categories farther with our purpose-driven ethos,” Vernón said.
At the same time, it wants to find a fit with its margin strategy, and ensure it can maintain a premium positioning that has taken a hit as a result of price increases among brands across the landscape amid inflation. Honest may de-prioritize or exit some categories along the way.
In particular, Vernon believes investing in hero products can help propel the brand.
“That’s something I learned on brands like Nature Valley, a business that had many, many SKU offerings, but some of them are very core, driving the fundamental growth and business model of the brand and then new places to play where they will really fit our business model as we go forward,” Vernón said.
The company’s fourth quarter results underscore why there may be a need to explore expansion. Revenue increased 2% over the prior year, but consumption was up 15%. The company recorded a net loss of $12.6 million.
The results showed a disparity between channels: Digital revenue declined 14%, while retail revenue increased 18%. Revenue was 57% retail, 43% digital.
The company said online orders were lagging consumption. Honest saw 8% consumption growth on Amazon, but also saw the ecommerce giant take a more cautious approach to inventory. With the cost of digital advertising going up amid rising CACs and privacy-oriented changes, it also shifted marketing spend to realize key opportunities in retail.
Vernón said the brand is also aiming to overhaul its ecommerce experience. Vernón is set to draw on her work with Amazon overseeing many of the same categories where Honest has a presence. These include babycare, household products, food, beverages, health and wellness and beauty.
At Amazon, Vernón was credited with elevating the shopping experience for beauty. She introduced more emerging and prestige brands, launched virtual lipstick try-on and created the first-ever beauty-focused holiday shopping event, called Amazon’s Holiday Beauty Haul.
Now, Vernón plans to work closely with the honest.com team to make sure the brand is meeting the expectations of the digital shopper.
“That has everything to do with things from being efficient in the experience of the storefront, really making sure you maximize the storefront so that the consumer transactions are clear, efficient and fast and so that we can really customize what we show to customers on the storefront so that when they are shopping, it’s an experience that’s highly relevant for them,” Vernón said.
While retail has gained more focus as partnerships with Target and Walmart have driven not only growth but incremental customers, Honest Company's overall strategy remains grounded in both channels. That means it is taking care to provide a standout presence on the ecommerce channels of retailers, as well as its direct-to-consumer site.
“As we continue to grow with our retail partners, we want to make sure that Honest is effectively being brought to life in the digital mediums that they are continuing to grow and invest in,” Vernón said.
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