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Welcome to a new week. It’s the countdown to the end of Q2. Over the weekend, many in the country get to take a breather for the 4th of July. There's BBQ waiting at the end of this sprint.
Here’s a look at what's on the agenda in ecommerce and the economy this week:
- PI Apparel New York: Product development leaders from the fashion, apparel and footwear industries are getting together on June 28-29 in Chelsea to discuss tech and digital trends shaping the profession. Featured speakers will be representing brands such as Nike, Tommy Hilfiger, Carhartt and more.
- Path 2 Purchase Retail Media Summit: Retail media is one of the most talked about areas of growth for brands and marketplaces. From June 28-30, this Chicago summit offers a look at the leaders, technologies and platforms at the intersection of advertising and ecommerce.
This week closes out the monthly cycle of data releases with several closely watched areas for economists and leaders in consumer goods alike:
- Durable goods orders for the month of May will be out on Monday. This measures new orders placed with manufacturers for delivery of hard goods with a life of three years. It’s a snapshot of the state of industrial production.
- Retail inventories are revealed for May on Tuesday. This measure has been in focus with one of the latest swings of the pandemic. While supply chain crunches eased up and goods ordered long ago started to arrive, retailers like Target and Walmart reported being overstocked with pandemic-era items that didn’t meet current consumer demand amid seasonal shifts and the return to in-person activities.
- The personal consumption expenditures price index is out for May on Thursday. While the Consumer Price Index goes first and gets a lot of attention, this price gauge is the preferred measure of the Federal Reserve as it tracks inflation. Having just raised interest rates .75% following a 40-year-high inflation reading on the CPI, this index will be closely watched for hints of what the Fed might do next in July.
Stories we’re following
- Wrapping up Q2: It’s the last dash before companies close out the quarter. Will we see deals get done and announced in the final days? Will there be signs of trends that we’ll be hearing about come earnings season? For some companies, it's the end of the fiscal year, further adding to the importance of COB on Thursday.
- How are retailers faring? While Revlon has become a meme stock, its bankruptcy is casting a serious shadow for retailers in the trenches. CNBC reported last week that more Chapter 11 filings could be coming this year. The complicated mix of consumer demand, supply chain issues, inflation and available cash make this hard to predict, but we’re monitoring for any signs of trouble.
- Passing on price increases: Prices have been high for a few months now, and the cost of doing business is going up along with it. Global consumer goods companies already raised prices when inflation started to creep up. Amazon passed on some costs to sellers. Now, there are more signs that direct-to-consumer brands and Amazon third-party merchants are following suit. How will brands manage through these increases, and how will consumers receive them?
Trending in Operations
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, 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.