Economy
31 July 2022
The Week Ahead: Earnings from Clorox, Kellogg, Wayfair; jobs report
Check out all of the happenings we're following in ecommerce and the economy for August 1-5.
Photo by Kelly Sikkema on Unsplash
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Welcome to a new week, and a new month. August has arrived, and with it comes a lull in the ecommerce events calendar. it's a good time to catch up with contacts one-on-one. Still, there are still plenty of opportunities to learn about where this economy is heading, and how public companies are adapting. Let’s get to this week's happenings:
Economic indicators
After last week's fresh dose of data on consumer behavior and the latest move by the Fed to hike interest rates to combat inflation, the focus turns to jobs this week. This will be important data on two levels. For one, the labor market is a key piece of the equation that measures the economy’s current strength at a time when many are mulling whether the US is in a recession. Plus, layoffs are continuing to pile up, as most prominently shown by Shopify’s decision to let go of 10% of its workforce last week. Here is the jobs data due from the US Labor Department this week:
- JOLT job openings, which shows data on job openings, hires and quits for July, will be released Wednesday, August 3.
- The monthly jobs report, which shows the unemployment rate and how many jobs employers added or subtracted in July, will be out Friday, August 5.
The following economic data is also due:
- S&P Global’s PMI data for July, which measures manufacturing and services activity in the economy, will be released in its final form on Wednesday, August 3. The month’s initial report signaled a slowdown for the first time since 2020.
- US factory orders for July will be reported on Wednesday, August 3.
- Trade: Imports, exports and the balance of trade will be released for July on Thursday, August 4.
Earnings
Second quarter earnings season rolls on. Here are the companies in ecommerce, retail and consumer goods that are set to report results this week:
- Monday, August 1: Pinterest
- Tuesday, August 2: Uber, Paypal, Sprout Social
- Wednesday, August 3: Clorox, Mckesson, Under Armour, elf Beauty, eBay, Tupperware, Hostess Brands, CVS
- Thursday, August 4: The Kellogg Co., Wayfair, Bigcommerce, Edgewell Personal Care, Lightspeed Commerce, Yeti, Beyond Meat, Restaurant Brands International, The Franchise Group, Funko
Stories we’re following:
Inventory: The inventory glut that resulted from supply chain-delayed items arriving too late to match consumer demand is moving firmly into focus. Walmart’s warning of lower profits ahead last week showed the pressure it is putting on retailers, while a New York Times story over the weekend showed how the merchandise pileup was creating a boon for liquidators. A couple of questions going forward: Are these issues filtering down to retailers beyond the Walmarts and Targets of the world? Is this a boost for resale?
Consumer healthcare: Amazon’s recent acquisition of One Medical and a pair of spinoffs from GSK and Johnson & Johnson are putting consumer health in focus. As these deals close and teams settle in, we’ll be watching the following: Where is there room to profitably innovate the healthcare experience, and what new products can be developed? Moreover, what principles from building ecommerce businesses will be applied to meeting consumers where they are in their health journeys?
Back-to-school: The slower weeks of summer are also a time to start getting prepared for fall. As back-to-school season moves into full gear, we’ll be monitoring the shopping trends that emerge online, and look to gauge how brands and retailers are faring during a normally busy time.
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Retail Channels
02 June
Macy's sees 'reset year' for ecommerce
The retailer's marketplace is expanding quickly.
When it comes to ecommerce growth, was the pandemic a blip or a new trendsetter?
As we move further from the height of COVID-related closures, it’s a question that will start to be answered through the lens of history.
So far, the narrative of ecommerce growth in the U.S. from 2019-2022 has gone like this: Ecommerce’s share of overall retail saw a huge spike at the height of the pandemic in 2020-21, when goods in general were in demand and online shopping was necessary to preserve health and safety. Experts looked out and saw a permanent exponential change in the penetration of ecommerce as a share of retail that would last beyond the pandemic. Then, in 2022, everyone went back to stores and the trendline came back to 2019 levels. Growth was no longer exponential. There was still growth, but it was not happening as fast as during the pandemic period.
With this in mind, it’s worth pointing out that 2023 is the first year that there likely won’t be a pandemic-influenced swing to influence ecommerce growth. It is also a year where demand has suffered challenges amid inflation and interest rate hikes.
So as we seek to determine the importance of ecommerce to overall retail, it’s worth it to continue taking a close look at what growth trends retailers are seeing now, whether ecommerce is remaining resilient amid consumer pullback and how retailers are preparing for the future.
The latest example arrived this week from Macy’s. It’s a fitting one for the times. Overall, Macy’s is seeing a slowdown as consumers pull back on discretionary purchases, with sales declining 7% in the first quarter versus the same quarter of 2022. Digital sales were down 8%.
Macy’s is particularly susceptible to the macroeconomic headwinds that many brands and retailers are facing, as spending among the middle-income consumers it counts as a primary customer base is particularly softening, said GlobalData Managing Director Neil Saunders.
But while ecommerce is slowing overall, the importance it gained to Macy’s business during the pandemic is remaining in place.
In 2019, ecommerce made up 25% of Macy’s revenue, CEO Jeff Gennette told analysts on the company’s earnings call. That jumped to a high of 44% in 2020. By 2022, digital reached 33% of sales after the pandemic boom. In the first quarter of 2023, it remained at 33%. So, while the trend line dipped after shoppers returned to stores, ecommerce share still settled in at a higher post-lockdown point than it was before the pandemic.
This came in a quarter in which traffic was “relatively good” across both online and in-store, Macy’s CEO Jeff Gennette said. It was “flattish” online, and slightly up in stores.
“We do expect that this is the reset year with the penetration between them,” Gennette said. “But we do expect more aggressive growth in digital in the future versus stores as we think about '24 and beyond. And that's going to be foisted by a lot of ideas and strategies.
Over the last year, the retailer has made investments in boosting ecommerce, even as shoppers returned to stores. In a bid to boost the assortment of goods available online, Macy’s launched a marketplace in September 2022 that welcomes goods from third-party sellers.
The marketplace had an “outstanding” first quarter, said Macy’s President Tony Spring, who is poised to succeed Gennette as CEO next year. Gross merchandise value increased over 50% when compared to the fourth quarter of 2022, while the average order value and units per order for marketplace customers was 50% above those not shopping at the marketplace.
Macy’s is continuing to build the marketplace even as it racks up sales. The retailer added 450 brands, ending the quarter with 950 brands.
This is helping to draw in new customers, as well as younger existing customers who are buying more items, resulting in increased basket size.
“We're very excited as to how marketplace is really attracting the Gen Z customer, particularly in categories where it was not economically feasible for us to carry in the past,” Gennette said.
In the end, Gennette said a strong digital and social presence is key to attracting younger consumers. That's a different type of shopper than other age groups.
“We know the younger customer starts first online,” Gennette said. That behavior will still be in place as the generation gets older, and gains more buying power in the process.
Going forward, Macy’s is seeking to expand the model to other retail banners in its portfolio. Bloomingdale’s will open a marketplace in the early fall.
The Macy’s ecommerce trajectory isn’t that different from the wider U.S. ecommerce narrative detailed above. With one quarter of 2023 data, there is evidence that ecommerce share settled out at a higher point after the pandemic than where it started before COVID arrived. There is flattening now, but the retailer is taking it not as a sign of a slowdown, or a signal to change course. Rather, it sees changing consumer behavior as a reason to build for the future.
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