Luxury Acquisitions, Retail Reset and Holiday at Morgan Stanley
Retailers are ready to tell their stories.
While supply chain back-ups complicate business and the Omicron variant looms, a raft of top executives from across the industry logged on for the Morgan Stanley Virtual Global Consumer & Retail Conference on Thursday, sounding generally bullish notes for holiday and beyond.
More from WWD
John Idol, chief executive officer and chairman of Capri Holdings, is actively looking at more acquisition targets. Brett Biggs, the outgoing chief financial officer at Walmart Inc., said the company has “so many different arms of potential growth.” Erik Nordstrom, CEO of Nordstrom Inc., said the company would get its Rack business on the right track. And Adrian Mitchell, CFO at Macy’s Inc., said November sales “more than met our expectations.”
Here, more on the future retail executives are pitching to investors (even as some of them head toward the door themselves).
Capri
John Idol might be preparing to pass the CEO reins to Joshua Schulman next year, but it doesn’t look like he’s easing off the accelerator at Capri, which started with Michael Kors and grew via acquisition with Versace and Jimmy Choo.
Asked to reflect on his deals to bring Versace and Jimmy Choo on board, Idol said: “I want to take not a victory lap, but I want to smile for a moment because I know when we bought Jimmy Choo, and then we bought Versace, I think the investment community as well as the fashion community didn’t understand how an American company could acquire two European luxury companies and be successful.”
Versace was an $800 million brand when it was acquired in late 2018 and Idol shut down $150 million of that business right away as the approach changed. From that $650 million base, the brand has expanded and is expected to hit $1 billion in revenues this year.
“It just doesn’t happen in a year or two years,” he said. “It takes five and it takes 10 years. So we’re a few years into that investment, and it’s going extremely well. And we’re committed to luxury. That is what that brand will stand for.”
Capri plans to keep growing through acquisition.
“We’re going to be disciplined,” Idol said of the company’s approach to dealmaking. “We believe that we will continue to focus only on the luxury area, which predominantly means, and I would almost say exclusively means, European luxury companies that really have the ability to be at minimum $1 billion because it’s not really worth our time, energy and effort to do something that will only be hundreds of millions of dollars, even though it’s a very sizable business. It takes kind of the synergy and effort to put that into a few hundred million as it does $1 billion-plus business.
“So we’re active,” he said. “We are actively looking now. We’re actually even involved in select conversations, nothing is on the horizon, but we are active.”
For Brett Biggs, longtime chief financial officer and executive vice president at Walmart, this looks to be his last holiday at the retail giant.
The CFO recently said he would be leaving the company and headed for points unknown. “Maybe for the first time in my life, I don’t know entirely what I’m going to be doing,” said Biggs, adding that he would continue his nonprofit work, see his family and make more time for the tee. “I’ll probably get a little more golf in. That will be part of the plan,” he said.
But as Biggs heads for the back nine, he said he’s leaving Walmart in a good place. “The strategy is as solid as I’ve ever seen it inside the company. And I think now we need to go execute against that. But when you have a competitive environment and macro environment that’s constantly changing, you’re going to continue to adapt that strategy.”
Biggs said his successor would come in with big growth opportunities laid out.
“When I came in [and joined Walmart] in 2000, we were, I’d say, $160 billion in revenue, and we’re way over $500 billion now. And I remember thinking about the rollout of supercenters at the time and what that could look like. But now I look at it and I just see so many different arms of potential growth that I think it’s astounding what this company could do.”
In addition to its core U.S. retail business, Walmart has been expanding through e-commerce and its marketplace, with Flipkart in India; through its growing online advertising business, and more. And he said the consumer, which has helped propel the business during the pandemic, would remain strong next year.
Nordstrom
Nordstrom expects to show better results in the quarters ahead, with a lot of the upside expected from fixing Rack.
“We see delivering improving results in Q4 and the first half of next year,” Erik Nordstrom, CEO of Nordstrom.
“We’ve done a deep dive into our Rack business,” he said. “Longer term we see opportunities to grow the business and add stores. Shorter term, we need a better comp performance before we do that.”
Net sales for Nordstrom Rack last quarter, at $1.19 billion, decreased 8 percent versus the third quarter of fiscal 2019.
On the positive side, Nordstrom Inc.’s online sales saw double-digit growth last quarter. Also last quarter, the 100-unit Nordstrom full-line department store chain returned to 2019 sales levels.
THE CEO discussed the “headwinds around inventory levels and flow” impacting Rack last quarter and cited several steps being undertaken to reverse recent down trends, among them “leveraging” pack and hold inventories to offset supply disruptions, adding more merchandise from brands “coveted” by shoppers, and increasing Rack brand awareness.
“We see opportunities to have lower prices in some categories. But in some categories it’s not about the cheapest brand. It’s about coveted brands,” said Nordstrom.
Ninety percent of the top brands sold at the Nordstrom full-line department stores are also in Rack stores. “That flow of product has really been challenged this year,” Nordstrom said. Rack has about 250 stores.
Recently Rack experienced an over-dependence on lower priced goods in certain categories bringing average unit retail prices down and putting pressure on operations. But Nordstrom is elevating Rack brand awareness through the “More Reasons to Rack” marketing campaign launched in September.
“We have been around for a long time. What has sustained us is responding to the customer. We just didn’t do a good enough job of that,” said Nordstrom, referring to recent results that saw earnings fall below expectations amid sales gains, largely due to higher labor costs and issues at Rack.
“We know what we need to do and are committed to delivering it,” Nordstrom said.
Macy’s
November sales at Macy’s “more than met our expectations,” said Adrian Mitchell, CFO.
“That being said, the holiday season still has four weeks ahead of us,” Mitchell said. “And similar to last year, we know that there will be some holiday pull forward. So we won’t know what the amount of sales will be for the entire holiday season. But with the results in November, we’re off to a good start.”
Macy’s is continuing to see momentum riding off the second and third quarters of this year when comparable sales rose mid- to high single digits while operating with leaner inventories.
Among Macy’s initiatives for next year cited by Mitchell:
• The launch of a digital marketplace for Macy’s and Bloomingdale’s, introductions of new categories and products.
• Growing the Macy’s Media Network.
• Slowing down department store closings while continuing to open new-format, off-mall stores including Market By Macy’s, Backstage, Bloomie’s, and Bloomingdale’s The Outlet.
Macy’s in February 2020 called for closing 125 department stores in three years, and last month indicated only 10 stores, of the 60 left to be closed, will shut down in the beginning of 2022. Mitchell said Macy’s is re-examining the timing and number of store closings. Shopper traffic has recently been on the upswing.
“We view Macy’s as a destination for a broader set of categories with greater depth in select categories that should generate higher sales growth and profitability for our enterprise,” said Mitchell. “So digital marketplace is a proven model here. A broader merchandise assortment drives more sales in this model. The commission structure drives profitability. And with no inventory risk, we can further improve inventory productivity for the enterprise.” With digital, marketplace, vendor direct and owned merchandise (wholesaling) can “coexist,” Mitchell said.
He cited “a more permanent shift away from deep, broad-based promotions to much more personalized promotions using data science that’s just much more profitable for our business, our vendors’ business and I’m sure our competitors are seeing that benefit as well.”
And there is the possibility for more change at the company. Macy’s hired AlixPartners to review a potential separation of its dot-com and brick-and-mortar businesses a la Saks and Saks Fifth Avenue, though Mitchell did not address the subject.
More from WWD:
The Outside View: Reading Fashion’s Data Science Tea Leaves
PVH Builds Momentum as Stefan Larsson Teases Plan for the Future
Fashion’s Freshman Class, IPO Newbies in a Strange New World
