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Top Retail Executives Weigh In on the Customer

The consumer is starting to show signs of strain — and retailers are feeling it.

NEW YORK — The consumer is starting to show signs of strain — and retailers are feeling it.

This story first appeared in the May 1, 2013 issue of WWD.  Subscribe Today.

Industry heavyweights gathered Tuesday to update investors at the Barclays Retail and Consumer Discretionary Conference here sounded several cautious notes about shoppers on both the high and the low end of the price spectrum.

Although companies appear to be holding their ground for now, they might start to tweak outlooks for the year as they begin to report first-quarter results in a few weeks.

“The environment here in North America has gotten more promotional than it was 30 or 40 days ago, but it’s still pretty rational,” said Emanuel Chirico, chairman and chief executive officer, PVH Corp. “If, as we go into Mother’s Day, we don’t see a general pickup in the environment, I think you’re going to see it get more promotional….That’s what I’d be watching over the next three or four weeks.”

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PVH said adjusted first-quarter earnings would be higher than the $1.33 a diluted share it previously projected. However, the shift was attributed to higher-than-expected wholesale shipments, mostly due to changes in timing at retail accounts. The company didn’t alter its $1.9 billion guidance for quarterly revenues.

Consumer confidence yo-yoed back up last month, but experts said it’s still too early to tell if sentiment has stabilized. The Commerce Department said Monday that March consumer spending rose 0.2 percent from February, but incomes gains of 0.2 percent were half of what economists expected. If incomes don’t hold up, it will be hard for shoppers to power through the uncertainties in the economy, which along with the stock market is being propped up by low interest rates.

So retail is in a wait-and-see mode.

“We’re watching numbers very closely,” said Karen Hoguet, chief financial officer of Macy’s Inc., at the conference. “We have been saying for a while that we think the customer at the low end is struggling a bit. When we look at how various events are doing, categories, we’re a little bit concerned. There may be some pain happening there…it’s too early to know for sure.”

That pain, relatively, is also being felt on the higher end.

“There are some crosscurrents in luxury…the underlying health is pretty good,” said Stephen I. Sadove, chairman and ceo of Saks Inc. “There is a challenging economic environment, the Dow [Jones Industrial Average] is a positive trend but there’s a bit of a negative from tax reform and the tax rate increase. Our core customer has seen an 8- to 10-point increase in their tax rate.”

Saks, like other chains, is charging into the world of omnichannel retailing and shipping goods from all its stores. The company is spending $100 million on an enterprise computer system to knit together merchandise planning, financial systems, buying tools and other functions.

Sadove said the 43-unit Saks Fifth Avenue would see “a few more closings…Thirty-something is probably the right number we should have.” Saks has been steadily downsizing and will close its Tampa store on Saturday; Dallas in June, and Stamford, Conn. in early 2014. Nineteen units have been closed in the last decade, though a full-line store in Puerto Rico and a replacement store in Sarasota, Fla., are planned. The company is projecting 3 percent to 5 percent comparable-store sales growth this year.

Here’s more of what executives had to say at the Barclay’s conference, which ends today.

Emanuel Chirico, PVH Corp.:
• “I think the previous management team [at J.C. Penney] didn’t have enough respect for the main-floor business. Penney’s meat and potatoes, where they made their money, was on the main floor selling basics — underwear, socks, dress shirts and neckwear — where there was a value proposition….The ‘new’ management team…wants to recapture that main-floor business and they’re asking us what we can do to help them get back in those [basics] categories for the back-to-school season.”

• “What we really have with Warnaco, in just about every [European] market, is a very healthy men’s and women’s underwear business and a weak jeans business. I think we’re uniquely qualified to turn the jeans-sportswear business around given our expertise, given our control of the brand….The other [Warnaco] market that needs a turnaround is North America….The distribution is wrong, particularly on the jeans side. It’s overly distributed into the off-price channel. It is the only Calvin business…that’s not comping positive with all the major retailers.”

Stephen I. Sadove, Saks Inc.:
• “I would characterize the high end of retailing as undergoing an enormous period of transformation. There’s more change going on than most of us have seen in our careers, and a lot has to do with omnichannel. We are making major investments in the omni space. Those who make the investments are going to reap some very substantial rewards longer term.”

Michael Kowalski, chairman and ceo, Tiffany & Co.:
• “Tiffany’s financial performance in 2012 did not meet our expectations. Gross margin was pressured by high material cost. Fortunately, we do expect those product cost pressures to dissipate materially in 2013.”

• “I think this year we continue to have a focus on strengthening our position as a global luxury retailer. What we are committed to is to continue to grow the brand, and to grow the luxury component of the brand.”

• “Outside of the United States is where we see the greatest opportunity.”

• “We have to climb the price-point ladder so we can inject more excitement in the product offerings. We also have made the decision that we are not going to chase the consumer down. That would be a problem for the health of the brand. All of our design effort, all of our marketing effort is going to be moving up the price-point ladder. It’s a bit of making a virtue out of necessity.”

Victor Luis, president and chief commercial officer, Coach Inc.
• “We are going through a very substantial transformation as a brand and of course as a company with senior management changes, as well as [transforming from] what has been a handbag- and accessories-based brand to a more general lifestyle brand still anchored in handbags and accessories. Still, I would say that change and innovation are very much a part of our company’s DNA.”

• “The global handbag and accessories market we see growing over the next three to five years at a 7 to 8 percent pace, and we see Europe growing at approximately 3 percent. But still, in and of itself today, [Europe is] a very large market where we’ve had very little to no presence, and an important market, if not only for its domestic consumption, but increasingly important, as a tourist market.”

• “Overall we haven’t seen a dramatic change in our business [in China]…we’ve achieved results of nearly 40 percent growth. On the macro level, of course, it still is a market that is experiencing a very fast-paced growth in its middle class, and of course by the continued expansion of GDP.”

Karen Hoguet, Macy’s Inc.
• “After about 10 years of taking steps, I think we finally have transformed the company to be something that has enormous growth potential, growth on the top line, growth on the bottom line, the cash flow, etc.”

• “You just can’t say comp store plus new stores equal total sales; you have to think completely differently in terms of modeling these new transactions that are done over the Internet. It’s, by the way, causing our own planning processes to be a lot more confused than they had been, but it’s all for the good.”

• “The key in today’s world is to test everything. And so we have a whole digital technology group who is throwing a whole bunch of tests out to our stores because, honest, as good as we think we are at making decisions, we’re finding customers are behaving differently sometimes and so these tests are really helping us to execute.”