Consumers are still spending on nice things, if they’re on trend

Originally Published: 25 SEP 23 08:25 ET

By Parija Kavilanz, CNN

New York (CNN) — American consumers aren’t tired of shopping. They’re shopping more prudently, with an eye on getting the best value, sure. But they’re also rewarding the stores that are betting big on the right trends at the right time, for the right price.

US households, to be sure, have remained resilient through a confusing macroeconomic environment.

But they continue to be caught in economic crosscurrents of inflationary pressures on products and services, rising gas prices and the upcoming resumption of student loan repayments offset by a still-strong labor market, rising home prices and wage growth that’s rising faster than the rate of inflation, helping to keep them spending.

“Coming out of the pandemic, consumers were excited to spend again. But they were indulging more on experiences, travel, concerts and eating out, more than on products,” said Jharonne Martis, director of consumer research at Refinitiv.

This trend continued through 2022 and up until the first quarter of 2023.

“What we saw through the summer is that spending on goods has returned and we’re seeing signs of it going back to how it was before the pandemic,” she said.

This bounceback, however, in discretionary purchases — clothes, shoes, jewelry, makeup — isn’t equally benefiting all retailers all across the board. “It’s happening in pockets,” said Martis.

“The trick for retailers, and the part many struggle to get right, is to ensure products and the place where they are sold are sufficiently desirable to encourage consumers to part with their money,” said Neil Saunders, retail industry analyst and managing director of GlobalData.

While some of retail’s heavyhitters, such as fashion clothing chain Gap Inc., Express and department stores Kohl’s and Macys, are struggling with their merchandise mix to hit the right notes with shoppers’ current needs, there are others who are getting it right and increasing their sales.

The stores really hitting their stride

Abercrombie & Fitch: Selling fashion clothing for the masses is tricky, especially if it’s pegged to constantly chasing the latest fad. Conversely, just selling fashion basics, such as T-shirts and jeans, can become boring for the customer as younger shoppers — Millennials and GenZers — show a dislike for accumulating more stuff.

“We don’t need more of the same until it wears out or we outgrow it,” said Marshal Cohen, chief retail industry analyst with market research firm Circana. “We have more merchandise then we need out there, so getting it right is critical.”

Abercrombie & Fitch, which also owns teen clothing brand Hollister, appears to be getting it right. The company reported a 16% jump in overall sales in its most recent quarter.

“Much of this is down to improvements in the assortment which have been coming through for a while, but hit hard in the second quarter with some great selections outside of the core denim category that enticed teen shoppers,” said Saunders, adding that Abercrombie is offering the right mix to address all the wardrobe occasions of its customers, from casual to athleisure to dressier to travel.

“We are no longer a jeans and T-shirt brand. We are a lifestyle brand today,” Abercrombie & Fitch CEO Fran Horowitz, told analysts during the company’s most recent earnings call. She said the brand’s assortment of dresses, cargo pants, knit bottom and wide-legged jeans are meeting the current needs of shoppers.

Lululemon: Shoppers continued to shell out money last quarter for the brand’s pricey leggings that sell for $100 or more, helping the athleisure wear seller to log an 11% sales increase in its most recent quarter.

Lulu has two clear paths that are driving success, said Circana’s Cohen.

“Consumers are willing to invest in their purchases, Meaning spend more to get better. It’s worth the money to them. The status of wearing the product along with the indulgence factor add up to success,” he said.

And, Lululemon is also benefiting from the replenishment cycle following pandemic-time purchases of comfortwear as people hunkered down at home and gave up on formal officewear.

The brand is also pushing its assortment beyond leggings to athletic shoes, comfortable casual pants, hoodies and jackets, in a move to create an entire comfortwear wardrobe for its customers.

Beyond products, Lululemon is evolving into an experience destination, too, with some locations offering fitness classes as a way to further engage with the local community.

Mejuri: The Toronto-based jewelry retailer has intentionally positioned itself as a go-to destination for Millennials and GenZers for affordable fine jewelry. Co-founders Noura Sakkijha and Majed Masad launched the brand as a direct-to-consumer business in 2015, aimed at encouraging women to buy jewelry for themselves.

Since its launch, the brand has raised over $100 million to date, has over a million followers on Instagram and has sold its products to close to two million customers. “We have a 35% repeat purchase rate,” said Masad, in an interview with CNN Business. The company said it exceeded over $100 million in sales in 2021 and hit a 106% year-over-year retail sales growth from January to June, 2022.

That pace doesn’t seem to be slowing down, even in an uncertain economic environment, said Masad, adding that the company is expanding overseas and plans to have 29 storefronts by the end of the year.

Prices for Mejuri jewelry range from under $150 to $500 and higher. Apart from its value pricing, the company has tapped into another important emotional connection with Millennial consumers — sustainability. The brand said 95% of its gold jewelry and 92% of its silver jewelry in 2022 were made with recycled materials.

“When we founded the business, we wanted to redefine luxury and bring it a new experience within the fine jewelry industry,” said Masad. “We didn’t want the same cheesy ad of the guy buying the jewelry as a gift. We just wanted to make fine jewelry part of everyday wear. We saw no reason for why there should be a barrier between fine jewelry and our customer.”

He said Mejuri hasn’t wavered from that goal. “If you really bring value to the customer in this day and age and you’re willing to evolve and adapt to the economic outlook through your sales approach, products and pricepoints you will succeed,” he said. “There’s always going to be demand. Jewelry has existed for thousands and thousands of years. It’s not going anywhere.”

TJ Maxx: Shoppers can’t seem to get enough of the discount chain that sells branded and luxury fashion products at a discount. TJ Maxx logged a 7.7% sales increase in its most recent quarter.

“We are basically in a high-low consumption economy where people will trade down on some things, usually essentials, in order to save money for the things that they really want and enjoy buying,” said Saunders.

“That’s why we see people continue to buy new iPhones, expensive handbags, pricey apparel, and other high value items.” he said.

TJ Maxx’s treasure hunt-like shopping experience for branded clothing, footwear and home goods merchandise allows customers to do that.

“All these brands excite the consumer and are successfully appealing to their emotional wants and needs,” said Aaron Sorensen, partner and chief behavioral scientist with Lotis Blue Consulting.