Top executives from Macy’s Inc., Nordstrom Inc. and Urban Outfitters Inc. turned out for Goldman Sachs’ 25th Annual Global Retailing Conference on Thursday, but found the investment set to be a tough audience.
Even though the retail scene is showing signs of life, retailers had little luck convincing investors that their shares — which have already bounced back this year — should charge on much higher.
In a mixed day in the market, Urban Outfitters’ stock fell 8.8 percent to $43.54 as a big increase in third-quarter sales so far didn’t translate into promises of higher profits. Macy’s stock fell 1.2 percent to $35.36 and Nordstrom’s gained a modest 0.4 percent to $65.11.
Taking a longer look, Urban Outfitters is up 21 percent so far this year, while Macy’s is ahead 34 percent and Nordstrom is up 33 percent.
The question is how much more investors are willing to bet on companies that despite their digital strides forward are still heavily dependent on brick and mortar and squaring off with the likes of Amazon.
Calling 2018 “an investment year” for Macy’s, chairman and chief executive officer Jeff Gennette said the company is “confident” it will end the year with a positive comp after three quarters of positive comparable sales.
“Gross margins are up, and earnings well ahead of what we anticipated at the beginning of the year,” Gennette said.
Early investments in mobile are paying off. “This year, we expect to reach $1 billion in sales and transactions through the app,” Gennette said. “Mobile is also the delivery point for many of our improvements in the in-store experience,” including price checks, wayfinding, as well as mobile checkout which will be in almost every Macy’s store by the end of October.
Gennette said e-commerce continues to increase by “double digits,” that the online assortments are growing, particularly with an expansion of the vendor direct program, and by building out enhanced personalization features. Supporting online is the rollout of At Your Service counters at the store allowing our customer to pick up, return or buy online products, providing a big convenience to shoppers.
Macy’s has also been investing in a “Growth 50” strategy entailing upgrades in key doors including mobile checkouts; adding Backstage off-price departments and big-ticket items, and strengthening community ties with special events including trunk shows and charity activities. In addition, Macy’s is changing beauty departments to open-sell formats and more of a customer-centric model versus a brand-centric model, Gennette said. Beauty associates are being cross-trained to sell multiple brands and being incentivized differently, and Gennette said Macy’s has been “getting access to great beauty colleagues” from former Bon-Ton stores “then bringing them into our stores.”
“It is early innings,” he said. “Macy’s is on a path to sustainable profitable growth. But as we’ve said before, this is the most competitive retail environment that I’ve ever experienced.”
With Macy’s private brand business, Gennette said he puts the in-house Hotel “up against any textile brand in the country for its value…We’re now bringing that into other categories. You saw us bring it into mattresses three years ago. It came into furniture. It’s about to go into housewares.”
Macy’s made other investments this year, including purchasing Story, the 2,000-square-foot store in Chelsea with a storytelling retail model that changes the merchandise mix every six to eight weeks.
“We didn’t buy it just for one store. We bought it for what that could be to revitalize experience in Macy’s,” Gennette said, adding that Rachel Shechtman, founder of Story and now brand experience officer at Macy’s, is “deep into what exactly Story is going to look like at Macy’s. We’re going to be ready to launch something in 2019 so be ready for that, but also she’s helping us with integrated campaigns and she’s also helping us with a special project that we think is going to be really important for the future.”
Macy’s also invested in B8ta, a technology company that will support the expansion of Macy’s new The Market@ Macy’s format featuring pop-ups from different brands. Brands pay a fee for a short period of time and retain their sales, and Macy’s does much of the heavy lifting managing their spaces. Hundreds of brands want to be a part of The Market, Gennette said. “B8ta is giving us the technology platform to be able to program it all out, to curate it, and to bring it into a lot more doors.”
Nordstrom Inc. is having a “pivotal year” and fashion is playing an important part.
“Our ability to provide newness and a reason for the customer to buy something is key,” said copresident Blake Nordstrom. “And so roughly now 40 percent of our vendor inventory mix is what we would call limited distributed merchandise, and that’s really helping contribute in this environment.
“We believe we are the best source for the aspirational customer (which) vendors are looking for as well,” he said. “We need to be current, relevant and vendors need to stay current and relevant. We have a younger customer. Our average customer is 42 years old. It’s a very fashion-forward aspirational customer.”
Private label represents roughly 10 percent of Nordstrom Inc. While there is no target percentage Nordstrom strives to attain, the private-label business “is a key component” in providing merchandise that’s exclusive and with limited distribution. “We think there’s opportunities to grow that thoughtfully,” Nordstrom said
Recalling earlier decades, Nordstrom said, “When I started buying, you could see something develop somewhere in the country or the world. You could test it. You could reorder it later. Those days are gone. [Now] it happens really fast. So I kind of liken it to produce. It’s perishable fashion.”
Discussing the company’s expansion into Canada, Nordstrom said what’s missing is “a strong, robust dotcom business. That’s something to come. But we’re really excited about Canada.…We think that’s a $1 billion opportunity.” Nordstrom has six full-line stores and three Racks operating in Canada.
Nordstrom Rack will exceed $1 billion in digital sales this year. “It’s the fastest-growing business in our company’s history to get to $1 billion,” said Nordstrom.
Overall, he characterized Rack as “a $5 billion business and growing. It’s about one-third of our company’s business. It’s also the number-one source for new customers at Nordstrom. Six-and-a-half million new customers came to Nordstrom through our off-price business and one-third of those customers over the year became full-price customers.…Of the top 200 vendors that we carry at full-price, 90 percent have robust offerings in off-price.”
Nordstrom also noted women’s apparel had been a little softer the last couple of years, but saw some improvement in the first two quarters of this year. “It’s a big part of our business,” he said, adding that some pockets of the fashion business are encouraging. “Our shoe business has been fairly solid, but there’s some opportunities there as well. But in general, we have a very balanced approach.”
Ahead of the investor conference, Urban Outfitters said its retail segment comparable sales were up 10 percent so far for the third quarter — a very strong growth rate that would have the investors of many retailers turning cartwheels.
But Urban Outfitters’ shareholders were apparently looking for an increase in the earnings outlook to go along with the gains and pushed the stock down sharply.
That negative reaction aside, chief financial officer Frank Conforti said the company’s sales strength was broad-based and that the business was trending in the right direction from a pricing perspective.
“Both Urban and Anthropologie are just slightly below the 10 percent [comp]…and Free People is a couple of points above….all three brands have the opportunity to land the quarter with lower markdown rates on a year-over-year basis, continuing to focus on price sales and speaking to the health of our business.”
Urban Outfitters is being lifted by forces both economic and stylist in nature, the cfo said.
“There are some major tailwinds that benefit us, and I think benefit the space…where consumer sentiment is, where unemployment is and how strong the economy is,” Conforti said.
Alongside of that, the executive underscored the company’s belief — articulated earlier by founder and chief executive officer Richard Hayne — that the silhouette in fashion is changing, opening up opportunity for retailers to profit.
“So for many years, we were looking at big over little and skinny tight bottoms, skinny tight jeans,” Conforti said. “The feeling is that there is now a more emphasis and a focus…on the waist and on separates, different types of bottoms — bottoms and tops.”
“Now like any silhouette shift, there will be different iterations to that,” he said. “There will be different colorways, different fabrications, different styling of the silhouette shift. But the silhouette shift itself, we believe, lasts for several years and can be a positive tailwind certainly for the next few years to come up for our business and for the industry as well.”
The company is also looking for growth abroad.
Conforti said about 90 percent of its business is driven by North American and added: “We’ve now reached the size and awareness that that’s probably not appropriate. And it is certainly the time to put the foot on the gas a bit as it relates to Europe and then really start to press our plans in Asia, and start to grow our brands internationally.“
The Urban Outfitters chain has about 50 doors in Europe, while Anthropologie has 10 and Free People plans to enter the market with two doors in the fourth quarter.
“We think each of our three brands can get to somewhere around 75 to 100 stores [in Europe], and certainly provides for a lot of growth versus where they are today,” he said.
For the cfo, the biggest trick might be keeping Wall Street happy in the meantime.