Shiny makeup and glitter dress are back, enhancing Macy’s and Ulta

A Nordstrom employee fixes a floral dress on a mannequin at a retailer.

Ben Nelmez | Bloomberg | Getty Images

Wear track pants with jackets, lipstick, and eye-catching prints on your dresses.

Americans are sprucing up their wardrobes and spending more on stylish clothes, makeup and accessories as they start going out more and venturing back to the offices. Analysts and company executives say the trend is particularly evident among high-income shoppers eager to splurge on such items again, even with rising inflation and an uncertain economy.

“The masks are exploding,” Macy’s CEO Jeff Jennett said after the company boosted its earnings forecast and stuck to its sales guidance for the year on Thursday.

Those sentiments were echoed by a string of other retailers reporting quarterly results this week, including cosmetics and beauty chain Ulta Beauty and anthropology parent company Urban Outfitters. They said people pay to look their best when they leave the house again.

The latest round of results offers a more accurate view of the economy after two of the biggest retailers – Walmart and Target – sent shock waves across the market with downbeat forecasts and warnings that some shoppers were becoming more price-sensitive amid decades of high inflation.

Executives say rising food and gas prices are putting pressure on low-income Americans who are pulling back on spending. But so far, even the threat of a possible recession isn’t stopping high-income consumers from spending on things they missed during the early days of the pandemic.

Colorful head-to-toe suits

At Macy’s, Jennette said shoppers spend “hours” browsing in stores, especially in urban markets like New York. A year ago, he said people were more likely to be in and out.

“The luxury customer is back in a big way,” he said in a phone interview.

But Jennette notes that shoppers who make less than $75,000 a year seek more discounts.

The division in behaviors also appears to occur at Urban Outfitters. The company’s Anthropologie chain, known for its fun dresses and catering to high-income consumers, saw sales increase 18% in the quarter. At the chain of the same name, which caters to younger shoppers for their first or second jobs, sales were up just 1%.

“Sort of a bifurcation occurred,” Urban Outfitters CEO Richard Heine said on a conference call Tuesday night.

But even shoppers trying to save may be willing to buy things like T-shirts or purses they desire — especially if they think the store may be running out of stock, according to one retail expert.

Jan Kniffen, CEO of retail consultancy J Rogers Kniffen Worldwide, said in an interview on CNBC’s “Squawk Box” this week.

Kniffen said people are more inclined to try to save on groceries, as cheaper options may not be different in quality than brand-name brands: “Substitution is very easy in the grocery space,” he said.

Cosmetics chain Ulta Beauty also easily beat Wall Street sales forecasts this week, as shoppers buy things to pamper themselves and dress up at social gatherings. The company raised its full-year forecast after first-quarter sales jumped 18% in select locations compared to a year ago.

“New trends are coming in the makeup world that we’re excited about, and it’s definitely a push towards bold, luminous, gorgeous looks and shine,” said Ulta CEO Dave Kimbell. “People are ready to go out in the world and it shows.”

Kimbell said makeup is seen as affordable pampering even when people are on tighter budgets. Express clothing retailer also benefits from eager people to go out and get dressed again, with same-store sales up 31% in the quarter.

“One of the main fashion trends in women right now is head-to-toe color suits,” Express CEO Tim Baxter said in a phone interview. “We haven’t gone through this kind of fashion cycle in a long time.”

Helicopter environment for some

The changing behaviors suggest that retailers selling more casual wear, such as pajamas and sportswear, may now be doing more harm than good to their competitors after seeing sales increase when people were walking around the house.

Some are now burdened with stocks of epidemic-friendly clothing they were stockpiling when people were looking for comfort above all else. These items may eventually need a big discount.

American Eagle said Thursday that first-quarter demand was “significantly below” its forecast and trimmed its earnings outlook for the year. Inventory is up 46% from last year. The company’s Aerie division sells casual clothing, exercise equipment, and underwear for teens and younger women.

Abercrombie and Fitch also said inventory was up 45% in the fiscal first quarter from a year ago and lowered its sales forecast for this year. Gap sales fell in the first quarter, dragged down by Old Navy.

“In the past year, we’ve won a lot with Activity & Wool, Baby & Babies, and it’s our sweet Old Navy spot,” Gap CEO Sonia Singhal said in a phone interview. She said that the return of weddings, special occasions and office life is now putting pressure on those groups.

Gap’s stock is up 34% in the period, and the company has cut its dividend guidance for 2022. Only the Banana Republic chain, which caters to high-income clients, posted a spike in same-store sales.

At an Old Navy store, which Syngal visited recently where the median income in the area is around $100,000, she said the behavior of shoppers hasn’t changed much. But elsewhere with median incomes in the region around $50,000, she said the financial pressures are palpable.

“There is more emphasis on value for money,” she said, adding that people aren’t coming in as often either.

The mixed results across the industry reflect how the economy affects people as they emerge from the pandemic, said Stacey Widlitz, president of retail consultancy SW Retail Advisors.

“It’s a shift in spending. It’s a shift in behaviour. It hurts different companies differently,” she said.

—CNBC Melissa Rybko Contribute to this report.

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