Macy’s (M) reported disappointing third-quarter earnings this morning and warned on full-year earnings. As a result, shares of the stock tumbled more than 12%. The retail sector (XRT) also dropped into the red on the news.
Macy’s CEO and chairman Terry Lundgren told investors that the giant retailer missed on earnings because of unseasonably warm weather in the Northeast and a slow-down in international tourists in his shops.
Other major department stores, including Kohl's (KSS) and J.C. Penney (JCP), also experienced a slump in share price. “The retail industry is going through a tough period,” Lundgren said during his earnings call. “We seem to experience something like this every five to seven years.”
A new report from BGC Financial showed that retail salaries and wages are growing at a faster pace than the private sector in total. Growing salaries present yet another headwind that brick-and-mortar stores face against the growing strength of e-commerce.
Still, smaller teen-targeted retail brands continue to dominate. American Eagle (AEO) related preliminary third-quarter earnings that topped analysts’ expectations. Jessica Bornn, senior analyst at Merchant Forecaster, thinks that this is because they’re able to specialize and zero in on trends.
“For the last three years the consumer was really focused on price,” she says. “Now we’re in a strong fashion trend. It’s this whole folkloric bohemian kind of Woodstocky look.”
Bornn also notes that women are buying a lot of denim that helps shape their backsides. "Everyone really likes the way yoga pants make their rears look—so this denim has uplifting technology and lycra in them. Some retailers are even referring to them as the 'Yoga Jean'," she says.
While "athleisure" is the word of the moment (literally, it was just added to the Oxford English Dictionary), there's been a return to this new soft denim. Janet Kloppenburg, president of JJK Research, has said she expects denim to recover from its 8% drop in sales in 2014. “I’m optimistic that the category has stabilized, as average unit retail prices have, and that we might see a very low single-digit increase by the end of the year,” she told WWD.
Replay Jeans launched a high-end ad campaign this fall showing supermodel Irina Shayk performing yoga in their "Hyperskin" line of denim. Second Jeans is also selling a yoga jean at Nordstrom's for $125.
Men are also getting in on the action. American Eagle released the "Fall Flex Jean," made paritally from recycled coffee beans. The company says the jeans offer "revolutionary stretch technology."
While this denim appeals to consumers of all ages, it’s really the junior retailers who have picked up on the trend, says Bornn. She says brands like Guess (GES), Express (EXPR) Bebe (BEBE) and American Eagle are planning a big push on these jeans for fall and the holidays.
Handbags, jewelry and accessories are currently taking a backseat, according to Bornn. That's bad news for high-end retailers like Michael Kors (KORS) who rely on handbag and other lower-priced accessories to supplement the sales of their more expensive garments.