Strong Gap and Foot Locker earnings don’t spell a consumer comeback

The Gap logo is displayed at a Gap store in Los Angeles, April 25, 2023.

Mario Tama | Getty Images

Retail’s biggest winners during first-quarter earnings aren’t thriving because consumers are suddenly spending more on discretionary goods — it’s because they’re executing well and cash-strapped shoppers are selecting them over competitors. 

If there’s one takeaway from results posted by the most important U.S. retailers over the previous couple of weeks, it’s that shoppers are still spending — but being way more selective about where.

Feeling the brunt of sticky inflation, high rates of interest and an economy that feels tougher than it may very well be, consumers are prioritizing purchases which have the fitting combination of value, convenience and fun.

Corporations like Abercrombie & Fitch, TJX Corporations and Gap impressed Wall Street with their results, while others like Kohl’s, American Eagle and Goal disillusioned.

Take Gap and Foot Locker — two unlikely winners that posted results on Thursday. Each retailers are within the midst of ambitious turnaround plans and are performing higher than expected because of recent strategies they’ve implemented. 

Gap posted positive comparable sales for all 4 of its brands — Athleta, Old Navy, Banana Republic and its namesake banner — for the primary time in “a few years,” beating Wall Street’s expectations across the board, the corporate said. 

For years, Gap had been losing market share to buzzy competitors. But under latest CEO Richard Dickson, the marketing guru credited with reviving the Barbie franchise, the apparel chain has focused on financial rigor, brand storytelling and product development. In under a 12 months, Gap’s sales and profits have meaningfully improved, and its brands are starting to be a part of the cultural conversation again.

A number of weeks ago, actor Anne Hathaway went to a Bulgari party wearing a white Gap shirt dress that had been designed by the corporate’s latest creative director, Zac Posen. Critically, Gap dropped the $158 dress to consumers, and it sold out inside hours. This mix of selling and exclusive product drops is what Gap had long been lacking, and what competitors had already been doing. 

Foot Locker had declined over the past couple of years, but with the fitting combination of recent strategies and just a little little bit of luck, its turnaround is showing signs of life. 

Under CEO Mary Dillon, Foot Locker has worked to vary its stores, where it does greater than 80% of its sales. It has tried to create not only a greater shopping experience for consumers but additionally a greater place for its critical brand partners.

As a substitute of two partitions of shoes with competing brands mixed together, Foot Locker is changing its fleet so the brands have their very own unique displays. Its latest “store of the long run” concept at a Latest Jersey mall that brings that technique to life has grow to be its best performing store in North America in only a number of weeks, Dillon told CNBC, adding that brands are thrilled with the brand new design. 

The shift couldn’t have come at a greater time. Years into Nike’s technique to cut out wholesalers and sell on to consumers, the retailer is realizing it went too far and is now changing course.

With refreshed stores and higher product displays, consumers are converting more, too, and paying full price — even Foot Locker’s lower-income shopper. 

“Our consumer … this can be a category that could be very necessary to them. So when people have discretionary income, it might be limited, but you are gonna prioritize where you spend it, right?” said Dillon. “We’re proving that individuals are willing to spend full price, but you could have to have the fitting products and serve it up in a way that makes it enticing, right? In order that’s where the entire customer experience really matters.” 

Elsewhere, Dick’s Sporting Goods posted a solid first-quarter report Wednesday, as executives said average selling prices and transactions rose and that they saw no signs of consumers trading down for cheaper options. That will not mean shoppers are spending more broadly, though: Dick’s has long been considered a best-in-class operator that gives a solid shopping experience, meaning it could possibly win even when consumers are picky with their spending.

Denim wars

Two retailers that did not have great quarters — American Eagle and Kohl’s — tell a story of executing poorly or missing out on trends. 

CEO Fran Horowitz told CNBC that low-rise, baggy jeans are also uber-popular with its customers. During a recent visit by CNBC to its Hollister store just a brief walk from American Eagle’s outpost, loads of those form of jeans were on display for shoppers as soon as they walked into the shop.

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