Why Some Brands Thrive In A Tough Economy – And Others Do Not

Some companies successfully make a compelling case for the value of the merchandise they sell while others fail to excite customers. For instance, Crocs and On are examples of merchandise in demand; consumers are looking for these items. Crocs are in great demand because they are very comfortable shoes.

On the other hand, some stores and brands are not thriving because they have not given customers enough newness to motivate them to shop. In the 4^th quarter of 2022, Macy’s and Nordstrom both had a sales dip of -4.6%, while Kohl’s had a dip of -7.2%. All three had been struggling since before the pandemic started to attract customers. Capri, which relies heavily on department store sales with their Michael Koors brand, dropped 6 percent in sales in the quarter ended December 31, 2022. There was nothing exciting or innovative that Koors shoppers wanted.

Similarly Tapestry’s sales dropped -5.4% in the last quarter as well. Its three powerhouse brands (Coach, Kate Spade, and Stuart Weitzman) were soft but the company still had profit gain of +4%. That was because Tapestry has a large base of its own stores located in malls that served the customer with more personalized service. This attention to customer service protected the bottom line even as top line sales dipped. While department stores were more likely to reduce prices in order to generate more sales, specialty stores continued to rely on customer care to maintain strong relationships and generate repeat sales.

A lack of product excitement, especially when there is little personal service and attention to engage a customer, can put a real damper on spending. This is especially true for customers who are concerned about their financial situation. Neil Sanders, Managing Director of GlobalData, sums it up well; he says: “Customers, especially in the middle and lower end of the income spectrum are more likely to limit spending and impulse purchases which fall in the middle of the market”.

B of F (Business of Fashion) observed that the post pandemic frenzy for luxury products may have come to an end as middle class shoppers in the U.S. run out of pandemic era savings, but experts say the sector is poised for continued stable growth despite the economic downturn. Many luxury companies, including Hermes, LVMH, and Moncler saw comfortable double-digit growth in the same period. That Kering posted a small decline in the fourth quarter is an exception to the majority rule.

Looking to the future, China’s reopening also poses a promising bright spot for the category and brands are unlikely to lose the segment entirely as they continue to court the customer.

POSTSCRIPT: In my previous blog “Why Lay-Off Contagion Is Hurting Us”, I suggested that we are not likely at the beginning of a serious recession. Rather, I stated that the current slow sales period will end by the start of fourth quarter and we will see more aggressive consumer spending in the fourth quarter of 2023. Once again, I point to Federal Reserve Chairman Jerome Powell and believe his actions are guiding us in the right direction and will ultimately encourage customers to come back to shop. Certainly there is much to be done, but I do not think we will see a major decline of consumer spending.