Inside the organized crime rings plaguing retailers including Ulta, T.J. Maxx and Walgreens

In a tony suburban enclave in the San Diego foothills, police say, an organized retail crime “queenpin” had built an empire.

Tucked behind the stone walls of her 4,500-square-foot Spanish-style mansion, Michelle Mack had stockpiled a small fortune in cosmetics that had been stolen from Ulta and Sephora stores across the country, authorities said. 

Police don’t suspect that Mack, 53, took the items herself. Instead, they say, she pulled the strings from the shadows, employing a network of around a dozen women who stole the items for her so she could resell them on Amazon.

Michelle Mack’s home in Bonsall, California, Dec. 6, 2023.

CNBC

With their airfare, car rentals and other travel expenses paid by Mack, the suspects committed hundreds of thefts up and down the California coast and into Washington, Utah, Oregon, Colorado, Arizona, Illinois, Texas, Florida, Pennsylvania, Massachusetts and Ohio, investigators said. Mack selected which stores to target and what merchandise to take and the women were sent to clear out entire shelves of merchandise before making off with the stolen goods stuffed into Louis Vuitton bags, investigators said.

Investigators began referring to the theft group as the “California Girls” and considered Mack the crew’s ringleader. She made millions reselling the stolen items on Amazon to unwitting customers at a fraction of their typical retail price, investigators said, before she was arrested in early December.

Michelle Mack is taken into custody, Dec. 6, 2023.

CNBC

Law enforcement officials say Mack’s alleged theft ring is just one of the many that are plaguing U.S. retailers and costing them billions in losses annually. Their rise has led many companies to lock up merchandise, hire security guards and lobby lawmakers for stricter regulations.

These organized theft groups don’t typically carry out the splashy “smash and grab” robberies seen in viral videos. Instead, they pilfer goods quickly, quietly and efficiently. They often function within elaborate, organized structures that in some ways mimic the corporations they’re stealing from, police said.

CNBC has spent about eight months embedding with various law enforcement agencies and investigating theft groups to understand what organized retail crime looks like from the ground. In some cases, CNBC witnessed low-level shoplifting incidents involving people who appeared to be homeless or mentally ill. In other instances, CNBC saw takedowns of alleged organized theft groups that police said were reselling stolen merchandise at flea markets. Mack’s group, from her alleged network of professional thieves to her lucrative Amazon marketplace, was by far the most sophisticated one CNBC tracked alongside police.

California Highway Patrol officers arrest a retail crime suspect.

CNBC

But federal agents with Homeland Security Investigations, the Department of Homeland Security’s law enforcement branch, said some crime groups are even more elaborate — and theft is just one facet of their enterprises.

“We’re talking about operations that have fleets of trucks, 18-wheelers that have palletized loads of stolen goods, that have cleaning crews that actually clean the goods to make them look brand new,” said Adam Parks, an assistant special agent in charge at HSI, which is the main federal agency investigating retail crime.

“Just like any business, they’ve invested their capital into business assets like shrink wrap machines, forklifts,” Parks, who works out of HSI’s Baton Rouge, Louisiana, office, told CNBC in an interview. “That is what organized theft looks like, and it actually is indistinguishable from other e-commerce distribution centers.”

These theft groups in their myriad forms have become a thorn in the side of retailers big and small, prompting retailers to cite crime as the reason for lower profits, the inability to hire and retain staff, and the degradation of the in-store experience. They have also united politically divided Americans in their disdain for seeing everyday products locked up behind glass cases and witnessing brazen theft gone unchecked in stores.

Suspected stolen cosmetics found inside Michelle Mack’s home.

CNBC

Whether organized retail crime is actually rising is up for debate. Retailers including Target, Foot Locker, Walgreens and Ulta have said theft is a growing problem in recent years. But few have said how often it’s happening or how much money they’re losing from it, fueling accusations from some experts and analysts that they’re blaming crime in order to mask operational missteps.

The National Retail Federation estimates that retailers lost $40.5 billion to external theft, including organized retail crime, in 2022. That represented about 36% of total inventory losses — slightly lower than the 37% in 2021.

Even if theft has not meaningfully reduced some retailers’ profits, many have warned that crime can threaten the safety of workers and shoppers.

“The financial impact is real, but way more important is the human impact, the impact it has to our associates, the impact it has to our guests,” Ulta CEO Dave Kimbell told CNBC in a rare sit-down interview.

“It also impacts the communities in which we live,” he said. “If people don’t feel safe going in to shop in certain areas of a community, it really has an impact and can change neighborhoods and change communities over time.”

The government response to the issue has grown in turn. Both local and federal agencies have stepped up enforcement of laws targeting organized retail crime, and lawmakers are proposing and passing more measures that stiffen penalties for theft offenses.

HSI initiated 59 cases against organized theft groups in fiscal 2021, resulting in 55 indictments and 61 arrests, the agency said.

By the end of fiscal 2023, cases had more than tripled, to 199. Indictments spiked more than fivefold to 284, while arrests soared to 386, more than six times the number in 2021.

California Highway Patrol, which runs one of the most active retail crime task forces in the country, reports it made 170% more arrests for organized theft offenses in 2023 than it did in 2022.

It’s not clear whether organized theft offenses increased in that time or officials ramped up enforcement as the issue got more public attention and the retail industry’s lobbying engine pressed them to make it a priority.

CNBC embedded with teams from HSI and California Highway Patrol to witness four organized retail crime operations for this investigation. The probe is also based on more than a dozen interviews with law enforcement officers, retail leaders and customers, along with records, including court filings, company reports and property records.

New Orleans

On a sweltering Monday morning in July, about a dozen agents from HSI New Orleans gathered behind the U.S. Custom House, preparing for Operation French Quarter.

The officers were instructed to pose as shoppers inside three Walgreens stores and one CVS store in the area seeing high rates of theft, sometimes as many as 20 to 30 incidents per day, agents said.

As federal law enforcement agents who typically investigate terrorism, sex trafficking and gang leaders such as Joaquin “El Chapo” Guzman, the officers weren’t there to arrest people for petty theft. They had a clear directive: Find out who’s stealing and follow them out of the store to determine who else they may be working with.

“Obviously, the name of the game, guys and girls, is trying to get the bigger and better fish,” Assistant Special Agent in Charge Scott Robles, who led the operation, told the assembled officers. “We’re trying to identify the people who are in charge of this organized crime.”

Assistant Special Agent in Charge Scott Robles of Homeland Security Investigations addresses a team of undercover agents in New Orleans, July 17, 2023.

CNBC

At the bottom of organized retail crime rings are boosters — the people who go into stores and take the items. Robles was hoping the serial thieves targeting the drugstores could lead them to a larger operation.

“It can be anybody. It could be the mom with five kids just looking for extra money. It can be somebody that’s part of a team. … They may be getting paid with food, they may be getting paid with beer or drugs,” Robles said. “Some people get paid cash or they’re trying to work off a debt.”

Throughout the hourslong operation, agents identified at least one case that they say plainly showed organized theft.

Surveillance footage of the incident shows a man enter one of the Walgreens stores, head to the cosmetics aisle, remove a plastic shopping bag from his pants and calmly load it up with 17 jars of nail polish, valued at around $200. He then walked about a half mile away to the New Orleans Public Library’s main branch, where he sold the nail polish to a security guard, police said.

Federal agents briefly questioned the security guard, and the incident remains under investigation.

Beyond that instance, the vast majority of the thefts agents witnessed during the operation were low-level and petty, involving people who appeared to be homeless, mentally ill or transient. One man stole paper towels and then walked into a homeless shelter. A group took a case of beer and later went to a park to drink it. A woman stole a case of water, set up a stand to resell it and then defecated on the sidewalk.

Operation French Quarter showed how the lowest level of a retail crime operation can function, and how even small thefts can involve coordination among bad actors. Still, the incidents underscore the challenges investigators face when trying to build cases; they also demonstrate just how petty many thefts are, especially in urban areas with high rates of homelessness and addiction.

A Walgreens spokesperson told CNBC that the chain is “focused on the safety of our patients, customers and team members” and is taking steps to “safely deter theft” and “deliver the best patient and customer experience.”

“We are working closely with law enforcement, elected officials and community leaders to draw greater attention to and improve our response to retail crime,” the spokesperson said.

San Jose

Crates filled with unopened jugs of Gain, Tide and Downy detergent. Boxes stuffed with Gillette razors, Olay moisturizer and Allegra allergy pills. A pile of sparkly silver boots in sizes 8, 9 and 10 with the T.J. Maxx tags still on.

This is just some of the merchandise that California Highway Patrol found inside a home and storage container belonging to suspected members of an organized retail crime ring during a raid in November.

A bin filled with sparkly silver boots that police suspect an alleged San Jose, California, crime ring stole from T.J. Maxx.

Gabrielle Fonrouge

In all, investigators uncovered nearly 20,000 items valued at more than $550,000 across five locations connected with the group, according to CHP. Police suspect the majority of the items were stolen from T.J. Maxx stores and a variety of drugstores and grocery stores in and around the Bay Area.

CHP’s probe began in September, when investigators from TJX Companies, the owner of T.J. Maxx, reached out to the agency’s organized retail crime task force with information about a crime ring that it said was buying and reselling stolen goods — a “fencing” operation.

When boosters need to cash in on the items they take, they turn to fencers, who buy the products for pennies on the dollar and resell them at a margin Wall Street could only dream of, retail crime investigators have said.

Experts said retailers can have a hard time persuading law enforcement to investigate theft at stores because it is often considered a property crime, which police tend to see as less urgent than homicides, shootings and narcotics crimes.

To show law enforcement the scope of the problem, TJX investigators began conducting surveillance on the alleged crime ring. CHP agreed to take the case. Sgt. Manny Nevarez, who oversees all organized retail crime investigations in the Bay Area for CHP, told CNBC the group had hit stores in multiple counties in an effort to evade detection.

“They are not catching on that some of the retailers have their own loss prevention personnel and typically, if you target one store in San Jose, then the word gets out and then the next store is notified,” said Nevarez. 

Sgt. Manny Nevarez oversees organized retail crime investigations in the Bay Area for California Highway Patrol.

CNBC

Police learned that alleged members of the group were reselling the suspected stolen merchandise out of their homes and at the local Capitol Flea Market — a sprawling swap meet on the outskirts of San Jose. Officers also witnessed members of the crew receiving suspected stolen merchandise, transferring those goods to others in their network and exchanging money.

At the end of November, dozens of CHP investigators working with TJX descended on the five locations connected with the alleged fencing ring and carried out search warrants in a raid cops dubbed “Operation Kingsfall.” The locations included numerous homes along with a storage unit. 

“Nosotros somos policia,” the officers shouted in Spanish outside one of the homes. “Police, search warrant. Open the door with your hands up,” they continued, switching between English and Spanish before using a battering ram to knock down the door.

Officers from California Highway Patrol approach a home suspected to be connected with an organized retail crime ring in San Jose, California, Nov. 28, 2023.

CNBC

The location, an innocuous single-family home with Christmas decorations out front, looked like any other on the block. But on the sidewalk and grass near the property line sat dozens of discarded clothing tags, anti-theft devices, hangers and other retail store detritus.

Inside the home, CHP officers and TJX personnel found mountains of goods they suspect were stolen to resell, including bags of apparel with the tags still affixed, boxes of Huggies diapers, liquor and power tools.

By the time authorities completed the raids, they had enough suspected stolen merchandise to fill three 20-foot-long U-Haul trucks. A spokesperson for the Santa Clara County District Attorney said it is charging nine defendants in connection with the alleged crime ring.

Investigators examine suspected stolen merchandise connected with an alleged organized retail crime ring in San Jose, California.

CNBC

The law enforcement operation witnessed by CNBC showed the breadth of some of the fencing rings in the U.S. and how flea markets can play a role in the sale of stolen goods. Capitol Flea Market didn’t respond to a request for comment. 

“There’s certain crimes that come up where the public reaches a point where they’re like, ‘We have had enough of this,’ right?” Lt. Michael Ball, who helped oversee the operation, told CNBC. “And this is one of those that’s reached that level where people are saying widely and shouting it all the way up to our governor’s office that they have had enough of this.”

In a statement, a TJX spokesperson said the company is “thankful” for CHP’s efforts and is taking organized retail crime “very seriously.” The spokesperson said TJX is “laser-focused on ways to mitigate theft in our stores.”

The company told CNBC it will not resell the recovered merchandise. If TJX considers the items to be in suitable condition, it will donate them to charities in the area where they were found, the company said. If it deems the products unsuitable, it will work to dispose of them “responsibly,” it said.

San Diego

When Donna Washburn started shopping for a Christmas gift for her daughter in December, she wanted to “splurge” and buy her a bottle of Nars foundation. But she couldn’t find it in stock at a store close to home.

So, like many consumers, she Googled the product. She saw it was available on Amazon and cost around $38 before tax, nearly 30% cheaper than its typical retail price of $52.

“I said, you know, ‘It’s Amazon, it’ll come fast.’ It was the beginning of December. So I really didn’t want to wait too much longer for Christmas,” Washburn told CNBC in an interview, adding she was told it would arrive by Dec. 11.

Donna Washburn bought a beauty product from Michelle Mack’s Amazon store that police suspect had been stolen.

CNBC

Unknown to Washburn, police say, that bottle of foundation had likely been stolen by the crew of boosters allegedly employed by Mack — the suspected retail crime mastermind accused of running an illicit business from her San Diego mansion.

The Christmas gift ultimately never arrived, because Mack was arrested before she could ship the package, which was one of many found in Mack’s residence by investigators.

“I pay attention, but not that much, you know?” said Washburn, a 63-year-old clinical education associate in St. Augustine, Florida. “I’m shopping from Amazon. Hopefully you can trust it. So now that we know better … we’ll think twice.”

Washburn had bought the foundation from an Amazon storefront dubbed Online Makeup Store, which Mack had opened in 2012. CNBC viewed it before it was taken down in late 2023.

Suspected stolen cosmetics found inside Michelle Mack’s home.

CNBC

On its face, Mack’s storefront looked no different from the millions of others on Amazon’s marketplace. It had 4.5 stars on more than 100 reviews, and featured cosmetics from popular brands such as Mac, Tarte and Charlotte Tilbury that shoppers can find in neighborhood beauty stores.

There was just one red flag: the prices. Many of the products for sale at Mack’s store were listed at a fraction of the typical retail price, including a $25 bottle of Estee Lauder foundation that typically retails for $52 and Too Faced mascara that typically goes for $29 and was being sold for $17.

The store brought in millions. Since 2012, Mack sold nearly $8 million in cosmetics through the storefront before it was shut down, and she brought in $1.89 million in 2022 alone, Amazon sales records provided to investigators show.

Mack could offer such low prices, police suspect, because her crew of boosters had stolen the products in hundreds of incidents over more than a decade. Some of the thefts brought in around $2,000 in merchandise while others netted as much as $50,000 worth of merchandise, prosecutors said.

Mack’s business was humming along ahead of the holiday shopping season until the carefully crafted empire police say she built crumbled. On a cool December morning just before dawn, a convoy of CHP and HSI agents, armed with a search warrant, raided her sprawling mansion.

Mack, dressed in a baby pink pajama set and a pair of fuzzy mule slippers, was handcuffed and put into a police car as her teenage daughters stood in the driveway, watching.

Inside her garage, investigators found what they described as a “mini-store” — shelves and shelves of beauty products, sunglasses and designer bags organized in neat bins and categorized by product. They also found hundreds of postmarked yellow envelopes destined for unwitting customers, including Washburn, with “Online Makeup Store” marked as the return address.

Police recovered nearly 10,000 items worth a total of more than $387,000, CHP said.

A California Highway Patrol evidence photo of suspected stolen goods taken from the garage of Michelle Mack, who is accused of masterminding an organized retail crime network from her home in San Diego.

Source: California Highway Patrol

A California Highway Patrol evidence photo of suspected stolen goods taken from the garage of Michelle Mack, who is accused of masterminding an organized retail crime network from her home in San Diego.

Source: California Highway Patrol

A California Highway Patrol evidence photo of suspected stolen goods taken from the garage of Michelle Mack, who is accused of masterminding an organized retail crime network from her home in San Diego.

Source: California Highway Patrol

In February, California Attorney General Rob Bonta filed a total of 140 felony charges against Mack; her husband, Kenneth Mack; and seven other alleged members of the crew. The charges included conspiracy to commit organized retail theft, grand theft and receipt of stolen property. The defendants have all pleaded not guilty. CNBC contacted each defendant multiple times for comment, but none of them responded.

“This is a multimillion-dollar criminal scheme. It was complex. It was orchestrated,” Bonta said when announcing the charges. “We are not talking about garden-variety shoplifting.”

Court records filed in connection with the case provide a rare glimpse into the inner workings of an alleged organized retail crime ring. They show text messages between the suspects and details about the operation.

“I’m not stealing regular I’m going to start filling up my bag quick. So I want to know stuff I can grab in bulks too,” Kimora Lee Gooding texted Michelle Mack on Jan. 7, 2023.

Between Jan. 30 and Feb. 16, 2023, Gooding committed at least 10 separate thefts at Ulta stores across California, prosecutors allege in court records. In each case, Gooding took more than $950 worth of goods, the records say.

On Feb. 21, a few days after Gooding’s string of thefts, Mack sent her a screenshot of “Online Makeup Store” with an address she could ship the stolen products to. It was the same business address that was listed on Mack’s Amazon page before it was shut down, and traced back to a post office box a few miles from her home.

“Even without lancome we still did well,” Michelle Mack texted her husband two days later, allegedly referencing a prestige cosmetics brand owned by L’Oreal.

Soon, orders were pouring into Michelle Mack’s Amazon store.

California Highway Patrol Officer Andrew Barclay outside Michelle Mack’s home during her arrest.

Scott Zamost

“Lots of orders let’s get shipping,” Kenneth Mack texted Michelle Mack alongside an image that showed a bin full of paper.

By July 8, it appeared that the haul Gooding and others had allegedly brought in had dried up. Michelle Mack needed more things to sell.

“Did you get some new girls?” Michelle Mack texted Alina Franco, another person charged in connection with the theft crew. “I really need product so if you have anything please let me know.”

A day later, two more thefts connected to the ring were committed and many more followed, prosecutors said.

In addition to Ulta and Sephora, the theft organization targeted a range of other retailers, including Macy’s-owned Bloomingdale’s, Prada, Bath & Body Works, Victoria’s Secret, and Luxottica’s Sunglass Hut and LensCrafters, prosecutors said.

Sephora and Bath & Body Works declined to discuss the case with CNBC. Victoria’s Secret, Macy’s, Prada, Sunglass Hut and LensCrafters didn’t respond to requests for comment.

Despite the recent surge of headlines and commentary on the topic, organized theft groups have long operated around the world. But retail industry leaders and some law enforcement officials argue the rise of online marketplaces and e-commerce has caused such incidents to increase or have made it easier for theft groups to operate.

“There’s an ease of distribution that has become even more prevalent for stolen goods through online marketplaces. … You used to have to sell stolen goods at flea markets or out of the trunk of your car or maybe just locally,” said Ulta’s Kimbell. “Now, you have more sophisticated tools to have a broader reach across the country or even internationally.”

Ulta Beauty CEO Dave Kimbell said online marketplaces need to do more to prevent the sale of stolen goods.

CNBC

While Kimbell didn’t name Amazon specifically, he said online marketplaces are “part of the problem” and should be using the data, analytics and other technology available to them to be more “proactive” in shutting down bad-actor sellers.

“We shouldn’t have an environment where it’s possible to steal from one retailer and [have it] end up on any other platform, any other large-scale, mainstream platform” that people consider legitimate, said Kimbell.

Bonta called on Amazon and other marketplaces to “do more.” He said they could inform law enforcement, or at least talk to a seller, when red flags such as unusually cheap goods pop up.

“If you freeze out the demand and remove the market by closing out the marketplace where the stolen goods are so easily sold, you make organized retail crime as an organized crime less attractive. And we need to create barriers, instead of ease, for the ability to commit these crimes,” Bonta said in an interview.

California Attorney General Rob Bonta discusses Michelle Mack’s case in an interview on Feb. 16, 2024.

CNBC

In response, an Amazon spokesperson said that the company has “zero tolerance for the sale of stolen goods” and that the company invests more than $1 billion annually in preventing fraud and abuse.

“We leverage sophisticated detection and prevention solutions across our stores and fulfillment operations, allowing us to quickly spot a range of organized retail crime (ORC) schemes,” the spokesperson said in a statement.

The spokesperson said Amazon supports efforts to trace items throughout the supply chain and investigates allegations of stolen merchandise to find out how products were obtained.

“When we identify an issue, we work closely with law enforcement, retailers, and brands to stop bad actors and hold them accountable, including withholding funds, terminating accounts, and making law enforcement referrals,” which have led to arrests, product seizures and the disruption of retail crime rings, the spokesperson wrote.

The company said it assisted with the investigation into Michelle Mack’s alleged theft crew and provided evidence to investigators. It said it’s “pleased” the suspects were arrested because it “sends a strong message that the sale of stolen goods has severe consequences.”

Consumers, many of whom are hungry for deals as they contend with lingering inflation and high interest rates, may feel that buying stolen goods is a victimless crime, experts say.

Michael Krol, HSI’s special agent in charge, disagrees with that idea. He said not only does theft lead to higher prices for consumers but also the items they’re buying could be unsafe because of how they were stored or otherwise manipulated.

“Those items might not have the quality assurance and compliance that we expect in the United States. Baby formula, your medicines … [Consumers] could be buying baby formula that’s expired by three months,” said Krol.

The Inform Consumers Act, which took effect in June, was designed to curb the sale of stolen, counterfeit or otherwise harmful products on online platforms by requiring marketplaces to verify and share identifying information on certain third-party sellers.

The law was designed to prevent the exact type of illicit business Michelle Mack is accused of conducting on Amazon. If sellers are required to provide their contact information to marketplaces and on their listings, bad actors may be deterred from selling illicit goods.

However, Michelle Mack’s business name and an address belonging to it had been verified and was publicly available on her seller’s page. She’d already been on the platform for more than a decade by the time the Inform Act rolled around.

The verification process that Amazon conducted for Michelle Mack’s store after the Inform Act passed wasn’t enough to raise the company’s suspicions, either.

“In this instance, we did not receive signals to identify the seller was engaged in selling stolen goods,” Amazon said.

As part of the law, marketplaces are also required to provide a way for people to report suspicious product listings. But the law doesn’t require the marketplaces to do anything with that information.

“Amazon works hard to ensure our store is a safe and trusted place for shoppers,” Amazon says on a page where people can report suspicious listings. “If you believe any product, seller or other activity in our store is suspicious, please report this using one of the below methods.”

“While we are not able to respond directly to each report,” it says, “we appreciate your feedback.” 

— Additional reporting by Ali McCadden  

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New Macy’s CEO Tony Spring looks to revive a 166-year-old retailer fighting for relevance

Tony Spring speaks at an event unveiling the Macy’s new women’s apparel brand, On 34th, in July. Spring is former CEO of Bloomingdale’s and begins as Macy’s CEO in February 2024, succeeding longtime Macy’s CEO Jeff Gennette, right.

Melissa Repko | CNBC

Inside its headquarters in New York City’s Herald Square, Macy’s got ready to unveil its newest women’s clothing brand. Its incoming CEO Tony Spring prepared for his own reveal.

Spring took the stage in mid-July in front of fashion influencers, reporters and Macy’s employees, standing beside his soon-to-be predecessor, Jeff Gennette. He was at the pinnacle of his career, making his first public in-person appearance since being named CEO-elect of the 166-year-old department store operator.

Yet where many top executives would have lapped up the limelight, the 58-year-old retail veteran and leader of Macy’s higher-end department store chain Bloomingdale’s kept his remarks brief. He spoke for less than two minutes, then quickly stepped aside for On 34th, the company’s new brand of women’s clothing and accessories, to get the spotlight.

Spring will step onto a bigger stage and inherit the iconic department store’s issues when he takes over the role of Macy’s CEO on Sunday. His push to revive the retailer will depend in no small part on his ability to curate strong brands and store designs — and let the products win over shoppers.

Among the company’s challenges, Spring will contend with inflation-weary shoppers who continue to watch their discretionary spending, confront lower employee morale after more than 2,000 recent layoffs and stare down a contentious battle with activist investors. Macy’s has lost cachet with younger shoppers and brands who see its sprawling stores and endless aisles of merchandise as a relic of the past.

Investors have taken notice. Macy’s stock closed at $18.63 per share Friday, giving it a market cap of $5.11 billion. Shares have fallen about 24% in the last year.

Spring will face existential questions about how Macy’s can stay relevant and grow rather than shrink, as competitors such as Amazon, T.J. Maxx and even Target and Walmart steal away sales. He will also lead Macy’s promising efforts to chase suburban shoppers with smaller stores in strip malls, expand its offerings of trendier exclusive brands and luxury names, and build on the strong performance of newer businesses such as its beauty chain, Bluemercury, and its off-price business, Backstage.

In CNBC interviews, current and former Macy’s employees, industry leaders and investors said Spring will bring a deep retail background, a merchant’s sharp eye and credibility with coveted national and global brands from his decades at Bloomingdale’s.

Yet they acknowledged the new CEO will have his hands full. Some expressed concern that as a longtime executive at the company, Spring won’t bring the same scrutiny an outsider would.

“When you have an internal appointment, you don’t tend to see that much shake-up in the wider team, and sometimes that’s needed,” said Neil Saunders, managing director of research firm GlobalData. “The biggest risk is just really that. Someone new comes in the post, but we just see a continuation of the same old strategies without much new thinking.”

Macy’s declined interview requests for this story, but Gennette praised Spring as the right person for the job when the company announced his retirement and his successor’s appointment in March. Gennette pointed to Bloomingdale’s strong results — the higher-end department store has outperformed the namesake Macy’s brand in recent years — and described Spring as “an ally and trusted partner in advancing Macy’s, Inc.’s strategies.”

“Tony consistently innovates for the customer, is an exceptional brand builder and an excellent talent developer who has strengthened our culture through his leadership,” he said in the news release.

‘A merchant at heart’

Spring’s ascension to the top role at Macy’s is the culmination of nearly four decades with the retailer. Fresh from graduation from Cornell University, he was hired by Bloomingdale’s in 1987 as an executive trainee in the White Plains, New York, store.

He moved up the ranks, ultimately becoming CEO of the higher-end department store in 2014.

Even as he rose, Spring described himself as committed to one of retail’s key building blocks: making sure stores draw customers in, invite them to linger and surprise them with beautiful displays and items they didn’t know they needed. It’s a touch shoppers and Wall Street believe Macy’s could use as it fights for relevance.

“I’m a former merchant,” he told the audience at the launch event for Macy’s “On 34th” brand in July. “I still consider myself a merchant at heart.”

Bloomingdale’s is known for having a knack for understanding customers and which brands to carry. The chain, which has 55 locations across the country, has been a crown jewel of its parent company despite its smaller size. It carries pricey and prominent luxury brands, including Theory, Sandro and Alice + Olivia, but also has popular and more affordable in-house brands, such as Aqua.

It has also drawn shoppers with limited-edition pop-ups and collections of merchandise that tap into the cultural zeitgeist or cater to the Instagram and TikTok generations, such as an exclusive Barbie-themed clothing line.

Macy’s namesake brand accounts for most of its stores and revenue, yet Bloomingdale’s and Bluemercury have seen better sales trends.

On CNBC’s “Mad Money” in October, Spring said his time at Bloomingdale’s reinforced “it’s all about curation of product and the delivery of a better experience for the customer.”

“Retail is theater,” he said in the interview.

He described Bloomingdale’s as “a growth vehicle” but said the company’s namesake brand can be one, too.

“We’re talking to different customers and we can obviously learn from one another without becoming one another,” he said.

GlobalData’s Saunders has criticized Macy’s for sloppy displays, bland merchandise and poor customer service at its namesake stores. He said after leading “the better-run part of the business” in Bloomingdale’s, Spring needs to bring those “softer skills” to Macy’s.

“Get some pride back into the business,” he said. “That might mean making some investments. It might mean putting back in visual merchandising teams. It might mean investing more in staff and labor hours, but I think it’s a decision worth taking. And it’s a relatively easy win.”

Spring will have tougher tasks, though, Saunders said. In a competitive industry, Macy’s needs a sharper identity to compete with specialty retailers, big-box stores and off-price players that often beat the department store on convenience, value and fashion, he said.

And, he added, Spring must take a hard look at the company’s real estate footprint to decide where it should shut stores, shrink locations or expand outside the mall.

Wooing investors and brands

In his new role, Spring will have to charm investors, shoppers and hot brands. It’s a delicate balance, as its efforts to boost sales, make the store experience more appealing to customers and win over investors hungry for profits could at times clash.

As its stock value has eroded, Macy’s has gotten smaller by most other key metrics, too. Over the past decade, the company has closed about a third of its namesake stores. Its annual net sales have fallen during that same period, from about $28 billion in 2013 to $24.4 billion in the last full fiscal year it has reported, which ended in late January 2023.

Macy’s struggles have turned the retailer into a target for the activist investors Spring will face down as he becomes CEO. Its board last month rejected a $5.8 billion proposal by Arkhouse Management and partner Brigade Capital Management to acquire the shares of the retailer that they don’t already own and take the department store operator private.

In an interview on CNBC after that rejection, Arkhouse managing partner Gavriel Kahane signaled that he hasn’t given up yet. He called on Macy’s to open up its books to the investors, or the firm will take the matter to shareholders, he said.

Certainly not done with pursuit of Macy's acquisition, says Arkhouse's Kahane

Investors will get their best glimpse into the health of the company Spring is inheriting in late February, when Macy’s is expected to report its holiday-quarter results and its outlook for the year ahead. In the previous quarter, the retailer said it expected same-store sales to decline by up to 7% in the fiscal year that ended in late January.

Though the company’s sales are sagging, Spring will take over promising pockets of the business, as well. Its smaller stores, which Macy’s is opening in a growing number of strip malls, have outperformed sales at its traditional, mall-based locations. After launching the women’s clothing brand On 34th, Macy’s plans to debut and refresh other lines that shoppers can find only at its stores and on its website. That private brand strategy has succeeded for other retailers, such as Target.

Spring’s career as an insider has raised concerns among some industry analysts. A Macy’s spokesperson said that while Spring came up through Macy’s, he has pushed for adding fresh perspectives to the retailer’s leadership team. Many of the company’s recent top hires have come from the outside.

Those include his successor at Bloomingdale’s, Olivier Bron, who was most recently CEO of department stores in Thailand; and Sharon Otterman, Macy’s new chief marketing officer, who came from Caesars Entertainment.

Having the right national brands will also shape Macy’s future success. It’s another area where Spring’s experience as a merchant could benefit the company.

Compared with rival Nordstrom, Macy’s has been slow to add younger and newer brands that can draw fashion-forward customers.

As Macy’s expands its third-party marketplace, some new brands have joined its website. One of those is Untuckit, a men’s apparel brand typically sold directly through its own stores and website.

Just ahead of the holiday season, the company’s clothing debuted on Macy’s website. It was Untuckit’s first meaningful push into wholesale, said the brand’s CEO and co-founder Aaron Sanandres.

Sanandres said he saw Macy’s as a way to reach shoppers who haven’t yet discovered Untuckit. Now, he said, it’s considering its next moves in wholesale — including the possibility of selling apparel at Macy’s stores.

Yet he said he has grappled with the same questions that other popular brands may have. Will merchandise get confined to a corner of Macy’s huge stores? Will its reputation take a hit from being carried by a retailer associated with old-school malls or 40%-off signs? Can it keep tight control over its own brand’s level of promotions?

“There are a lot of conversations around that, and it’s partly why we’re baby-stepping into the relationship to make sure we don’t see any negative pushback from our customer,” he said.

One of the most crucial parts of Spring’s job will be attracting millennial and Gen Z shoppers who don’t share the same loyalty as their parents and grandparents to Macy’s namesake stores and website, said Oliver Chen, an equity research analyst for TD Cowen.

Winning those shoppers over will come down to having better merchandise and a sense of style, he said.

“You need to be inspired by Macy’s,” he said. “The customer doesn’t necessarily want the cheapest thing from Macy’s. They want a nice, fashion-forward thing.”

Some of those shoppers are like Annie Rush. On a recent weekday, she zipped in and out of Paramus Park mall in New Jersey to make a purchase for one of her teenage sons.

Rush said she prefers to shop online, where she can search for what she wants with the help of filters. At a Macy’s store, the sea of options can be overwhelming, she said.

“Sometimes they offer too many things,” Rush said. “It’s like decision paralysis. You can’t find what you want or have to dig.”

With an Old Navy bag in hand, she cut through Macy’s only to get to the mall’s parking lot.

— CNBC’s Gabriel Cortes contributed to this report.

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Nike sinks 12% after it slashes sales outlook, unveils $2 billion in cost cuts

Nike on Thursday unveiled plans to cut costs by about $2 billion over the next three years as it lowered its sales outlook.

The stock fell about 12% in premarket trading Friday. Nike shares were up 4.7% so far this year through Thursday’s close, lagging far behind the S&P 500’s gains for the year. Retailer Foot Locker, which has leaned heavily on Nike products, fell about 8% in extended trading.

Nike now expects full-year reported revenue to grow approximately 1%, compared to a prior outlook of up mid-single digits. In the current quarter, which includes the second half of the holiday shopping season, Nike expects reported revenue to be slightly negative as it laps tough prior year comparisons, and sales to be up low single digits in the fourth quarter.

“Last quarter as I provided guidance, I highlighted a number of risks in our operating environment, including the effects of a stronger U.S. dollar on foreign currency translation, consumer demand over the holiday season and our second half wholesale order books. Looking forward, the impact of these risks is becoming clearer,” finance chief Matthew Friend said on a call with analysts.

“This new outlook reflects increased macro headwinds, particularly in Greater China and EMEA. Adjusted digital growth plans are based on recent digital traffic softness and higher marketplace promotions, life cycle management of key product franchises and a stronger U.S. dollar that has negatively impacted second-half reported revenue versus 90 days ago.”

The company still expects gross margins to expand between 1.4 and 1.6 percentage points. Excluding restructuring charges, it expects to deliver on its full-year earnings outlook.

As part of its plan to cut costs, Nike said it’s looking to simplify its product assortment, increase automation and its use of technology, streamline the overall organization by reducing management layers and leverage its scale “to drive greater efficiency.”

It plans to reinvest the savings it gets from those initiatives into fueling future growth, accelerating innovation and driving long-term profitability.

“As we look ahead to a softer second-half revenue outlook, we remain focused on strong gross margin execution and disciplined cost management,Friend said in a press release.

The plan will cost the company between $400 million and $450 million in pretax restructuring charges that will largely come to fruition in Nike’s current quarter. Those costs are mostly related to employee severance costs, Nike said.

Earlier this month, The Oregonian reported that Nike had been quietly laying off employees over the past several weeks and had signaled that it was planning for a broader restructuring. A series of divisions saw cuts, including recruitment, sourcing, brand, engineering, human resources and innovation, the outlet reported.

The company didn’t immediately respond to CNBC’s request for comment on The Oregonian’s report.

During Nike’s fiscal second quarter, it posted a strong earnings beat, indicating its cost-savings initiatives were already underway. But, for the second quarter in a row, it fell short of sales estimates, which is the first time Nike has seen consecutive quarters of revenue misses since 2016.

Here’s how the sneaker giant performed compared to what Wall Street was anticipating, based on a survey of analysts by LSEG, formerly known as Refinitiv:

  • Earnings per share: $1.03 vs. 85 cents expected
  • Revenue: $13.39 billion vs. $13.43 billion expected

The company reported net income for the three-month period that ended Nov. 30 was $1.58 billion, or $1.03 per share, compared to $1.33 billion, or 85 cents per share, a year earlier.

Sales rose about 1% to $13.39 billion, from $13.32 billion a year earlier.

Nike is considered a leader among industry peers such as Lululemon, Adidas and Under Armour, but its profits have been under pressure and it has been in the middle of a strategy shift that has seen it rekindle its relationships with wholesalers including Macy’s and Designer Brands, the parent company of DSW.

Focus on margins

For the past six quarters, Nike’s gross margin has declined compared to the prior-year period, but the story turned around on Thursday. Nike’s gross margin increased 1.7 percentage points to 44.6%, slightly ahead of estimates, according to StreetAccount.

This time last year, Nike’s inventories were up a staggering 43% and the retailer was in the middle of an aggressive liquidation strategy to clear out old styles and make way for new ones, which weighed heavily on its margins. Several quarters later, however, Nike is in a far better inventory position, which is a boon for margins.

During the quarter, inventories were down 14% to $8 billion.

Nike’s gross margin turnaround came as the retail environment overall has been flooded with steep promotions and discounts as retailers struggle to convince inflation-weary consumers to pay full price. In September when Nike reported fiscal first-quarter earnings, finance chief Friend said Nike was “cautiously planning for modest markdown improvements” given the overall promotional environment.

While the company repeatedly pointed out the overall promotional environment, it said the average sales price of footwear and apparel were up during the quarter and the average selling price grew across channels with higher-priced products proving particularly “resilient.”

The company attributed the gross margin uptick to “strategic pricing actions and lower ocean freight rates,” saying it was partially offset by unfavorable foreign exchange rates and higher product input costs.

As one of the last retailers to report earnings before the December holidays, investors are eager to hear good news when it comes to Nike’s expectations for the crucial shopping season. When many retailers issued holiday-quarter guidance in November, the commentary was largely tepid and cautious as companies looked to under promise and over deliver in an increasingly uncertain macro environment.

Nike struck a note that hit somewhere in the middle. Its sales miss and focus on cost cuts signal larger demand issues, but CEO John Donahoe was upbeat when discussing Black Friday week sales.

“We outpaced the industry, driving growth of close to 10%, Nike digital had its strongest Black Friday week ever and a record number of consumers shopped in our stores over the long Thanksgiving weekend,” said Donahoe.

China is another key part of the Nike story. As the region emerges from the Covid-19 pandemic and widespread lockdowns, China’s economic recovery has so far been a mixed bag. In November, retail sales climbed 10.1% in the region.

It was the fastest pace of growth since May, but those numbers were up against easy comparisons and the growth was largely driven by car sales and restaurants, according to a research note from Goldman Sachs.

During the quarter, China sales came in at $1.86 billion, which fell short of the $1.95 billion analysts had expected, according to StreetAccount. Sales in Europe, the Middle East and Africa also fell short of estimates, but revenue came in ahead in the North America, Asia-Pacific and Latin America markets, according to StreetAccount.

Read the full earnings release here.

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Nike misses on revenue for first time in two years, but stock pops as earnings, margins beat

Nike reported revenue Thursday that fell short of Wall Street’s sales expectations for the first time in two years, but it beat on earnings and gross margin estimates, sending its stock soaring in after-hours trading.

Here’s how the sneaker giant performed during its fiscal first quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG, formerly known as Refinitiv:

  • Earnings per share: 94 cents vs. 75 cents expected
  • Revenue: $12.94 billion vs. $12.98 billion expected

The company’s reported net income for the three-month period that ended August 31 was $1.45 billion, or 94 cents per share, compared with $1.47 billion, or 93 cents per share, a year earlier.

Sales rose to $12.94 billion, up about 2% from $12.69 billion a year earlier. Revenue for the quarter was just shy of the $12.98 billion analysts had expected, according to LSEG.

Nike shares rose about 8% in extended trading Thursday.

The retailer maintained its full-year guidance of revenue growth in the mid-single digits and gross margin expansion of 1.4 to 1.6 percentage points.

“We’re closely monitoring the operating environment, including foreign currency exchange rates, consumer demand over the holiday season, and our second half wholesale order book,” said finance chief Matthew Friend on a call with analysts.

“We are cautiously planning for modest markdown improvements for the balance of the year, given the promotional environment,” he added.

For the second quarter, Nike expects revenue growth to be up slightly versus the prior year and gross margins to grow by about 1 percentage point versus the prior year.

Investors have been laser focused on Nike’s recovery in China, its relationship with its wholesale partners and how the resumption of student loan payments will impact sales. 

They’re also keen to see Nike’s margins recover after bloated inventories, high promotions and supply chain woes contributed to lower profits over the last few quarters. 

During the quarter, Nike’s gross margin fell about 0.1 percentage points to 44.2%, but it was higher than the 43.7% analysts had expected, according to StreetAccount. The company attributed the gross margin drop to higher product costs and currency exchange rates, but those trends were offset by price increases, which contributed to the earnings beat.

Sales in China grew by 5% compared to the year-ago period to $1.7 billion, which fell short of the $1.8 billion analysts had expected, according to StreetAccount.

During the previous quarter ended May 31, Nike saw China sales jump 16% compared to the year-ago period. But the numbers were against easy comparisons because the region was still under Covid-related lockdown orders during the prior year. 

While Nike remains bullish on China, the region’s economic recovery has so far been a mixed bag. Following a sluggish July, retail sales picked up during the month of August to rise 4.6% compared to the prior year, beating expectations of a 3% growth forecast by Reuters. 

“We feel good about the market there and our position,” said CEO John Donahoe, adding he’s traveled to China twice in the last four months. “Frankly, a couple things stand out. One, sport is back in China, you can just feel it, and that gives us great confidence about the future and the Chinese consumer in our segment, regardless of the macroeconomic outlook there.”

Nike saw sales jumps in every region besides North America, its largest market by revenue. Sales in North America fell 2% from the year-ago period to $5.42 billion, just above the $5.39 billion analysts had expected, according to StreetAccount.

In Europe, the Middle East and Africa, sales were up 8% at $3.61 billion. That compared with the $3.51 billion analysts had expected. Sales in its Latin America and Asia Pacific unit came in 2% higher at $1.57 billion, just shy of the $1.59 billion analysts had expected, according to StreetAccount.

The Converse brand, on the other hand, fell well short of expectations for a second quarter in a row. Sales came in at $588 million, down 9% compared to the year-ago period. Analysts had expected sales to be about $660 million, according to StreetAccount.

Nike’s direct channel, which includes its owned stores and its digital channel, led the retailer’s growth during the quarter and was up 6% compared to the prior year. In June, the company noticed that shoppers were shifting towards its stores over its digital channels, signaling consumers are getting closer to pre-pandemic shopping habits.

“We continue to see that consumers want to connect directly and personally with our brands and in fact, member engagement within our direct business is up double digits versus the prior year with increasing average order values,” said Friend.

“Our stores delivered an especially strong quarter with traffic up double digits from last year, and members driving an increasing share of our business as consumers shifted from our digital to physical channels… Our team was nimble in transitioning inventory to capture higher full-price sales across our entire store fleet,” he said.

When it comes to its wholesale revenues, Nike’s relationship with those partners have been rocky. As the company has pivoted to a direct-to-consumer model, it has focused on driving sales online and in its stores at the expense of its wholesale accounts. 

However, as Nike grappled with excess inventories throughout 2023, it relied on those partners to move through that merchandise. It has now restored its relationship with both Macy’s and DSW – accounts that it previously cut in favor of its DTC strategy. 

Some analysts expected Nike’s wholesale revenue to be sluggish during the quarter because excess inventories have been a problem throughout the retail industry – and some wholesalers are being more particular in what they order to avoid another backlog. 

Wholesale revenue during the quarter was flat compared to the year-ago period at $7 billion.

Both Donahoe and Friend made it clear to analysts that Nike is ready to meet customers in all channels — including through wholesalers and directly. The retailer shouted out Dick’s Sporting Goods as one of its key partners and noted that it’s still in the process of resetting its business with Footlocker, which has seen two quarters in a row of plunging sales and profits.

Despite the shift in how it’s working with wholesalers, Nike insisted that direct sales will pave the way to its future growth.

“Ultimately, we have a segmented portfolio of strong partners across price points and channels. With no single partner representing more than a mid-single digit of Nike’s total business,” said Friend.

“While the ultimate landing spot of digital and direct isn’t as clear, we do believe we’re going to be a more direct and a more digital company, and a more profitable company,” he said. “And there’s a channel mix and channel profitability opportunity that comes with that as well.”

Meanwhile, inventories fell 10% to $8.7 billion. The drop was driven by a decrease in units but offset by product mix and higher manufacturing and production costs.

“On the whole, we’re very comfortable with the level of inventory in the marketplace in relation to the retail sales that we’re seeing as we begin increasing levels of wholesale sell in our second half,” said Friend.

Amid decades-high inflation rates, consumers have been pulling back on apparel and footwear. With the resumption of student loan payments looming ahead, some analysts expect those sectors to take an even greater hit. 

Jefferies conducted a survey on U.S. consumer spending and found 54% of respondents plan to spend less on apparel and accessories. Meanwhile, 46% plan to spend less on footwear, which doesn’t bode well for Nike. 

It’s still too early to gauge the impact of student loan payments on Nike. Its first quarter ended in late August, and payments aren’t set to resume until October.

During the quarter, footwear sales rose 4% to $8.4 billion, making up about 68% of Nike’s total sales. Apparel was down 1% at $3.4 billion.

Correction: Nike’s gross margin fell 0.1 percentage points. An earlier version of this story misstated that figure.

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As Macy’s stock struggles, the retailer bets on private brands with more modern looks

Macy’s launch event for its new private brand, On 34th, also marked one of the first public appearances by Tony Spring (left) since he was named incoming CEO. Spring is CEO of the company’s higher-end department store chain, Bloomingdale’s. He will succeed Jeff Gennette (right) in February.

Melissa Repko | CNBC

NEW YORK — Macy’s, the 165-year-old department store chain, is looking for ways to keep up with the newer kids on the block.

The retailer faces slumping sales, and its stock has struggled in a good year for the market. Now, it’s banking on a wave of new and refreshed private brands to attract shoppers, especially as some flee to popular direct-to-consumer brands, online giants like Shein and Amazon, and big-box players like Target.

On Wednesday, it showed off its newest private brand, On 34th, at its Macy’s Herald Square flagship. The brand, named after the legacy store’s Manhattan location, is made of up of women’s clothing and accessories. The brand is designed for women ranging from 30 to 50 who want modern, versatile and easy-to-wear looks.

The new brand is hitting store shelves and Macy’s website at a challenging time for the company and much of the retail industry. Consumers have cut back on discretionary spending at stores as they’re pinched by steeper grocery bills and rent, while they spend on experiences like concerts and summer vacations. The department store operator cut its full-year outlook last month, after seeing consumers pull back on purchases of clothing and other items.

On 34th is the first of four new private brands that Macy’s plans to launch by the end of 2025. It also plans to refresh some existing labels and phase out others.

Macy’s Chief Merchandising Officer Nata Dvir said On 34th’s debut comes after more than two years of customer research.

“They cared about fit, quality and value and had a tremendous amount of passion around what they were putting on every single day,” she said. “And they deserved better.”

The kickoff event previewed another piece of Macy’s future, too: It marked one of the first public appearances of Tony Spring, since he was named its next CEO. Spring, who currently leads the parent company’s higher-end department store Bloomingdale’s, will succeed Jeff Gennette in February.

Gennette said Wednesday that consumers’ financial stress continues to show up in the company’s sales trends.

Macy’s significantly cut its financial expectations in June. The department store operator, which includes Bloomingdale’s and beauty chain Bluemercury, said it expects comparable owned-plus-licensed sales to drop by 6% to 7.5% for the year. It expects earnings per share of $2.70 to $3.20 for the year.

Shares of Macy’s have reflected investors’ concerns. Macy’s stock was down more than 20% so far this year as of Wednesday. The S&P 500, by comparison, is up 19% this year.

Some of Wall Street’s worries are company-specific, as investors question whether the legacy department store can keep up with shoppers’ changing tastes.

Macy’s has sought to steady the ship in recent years while battered by other fast-changing dynamics. Led by Gennette, the department store kicked off a three-year turnaround plan in February 2020, about a month before the start of the Covid pandemic. It called for shuttering lagging stores, investing in its higher performing locations and stepping up online growth.

Macy’s is leaning into private brands to drive growth. Its newest brand, On 34th, is designed to be both fashion-forward and easy to wear. It ranges in price from $19.50 for a tank top to $299.50 for a leather jacket.

Melissa Repko | CNBC

Private brands are a common way that retailers offer lower-priced and exclusive merchandise to customers. The labels tend to be more profitable, since the companies have direct control, fewer middlemen and scale when making the items. Plus, since the items can’t be found anywhere else, the retailer isn’t going head to head on price with a competitor.

Macy’s sells a mix of private brands and national brands, including Ralph Lauren, Calvin Klein and Levi Strauss. It has about 25 private brands that cut across categories like apparel and home goods, including On 34th.

In the most recent fiscal year, private brands drove approximately 16% of sales. Yet Macy’s would like to get that closer to about 20%, a level that it hit in the past.

But the strategy comes with risks. Target is the poster child of private label success, after hatching and expanding many billion-dollar brands including children’s apparel brand, Cat & Jack, and activewear brand, All in Motion. On the other hand, some investors have pinned the downfall of now-bankrupt Bed Bath & Beyond in part to its expensive and aggressive rollout of private brands that customers didn’t want.

Gennette said Macy’s has been thoughtful about the push. It’s gathering customer input while developing the apparel and even made tweaks in recent weeks while testing the brand with customers at two New Jersey stores. Plus, he added, Macy’s has had years of experience selling private brands with a following, such as women’s apparel brand I.N.C. and home goods brand Hotel Collection.

The company has poached talent from retailers known for strong brands, too, including Emily Erusha-Hilleque, a 23-year veteran of Target, as its senior vice president of private brands. It also hired Bryan Riviere, previously of Gap-owned Banana Republic, Levi Strauss, Lululemon and Nike, as its senior vice president of private brand sourcing, product development and production.

Along with providing fresh looks, Macy’s wanted to step up the quality and fit of its clothing. Over the past three years, it has cut the number of factories and mills that it works with by about half, Riviere said. By working with fewer partners, it has the scale to negotiate better prices, savings to invest in better fabrics and knits and more buy-in from the factories that it works with.

It also worked with a technology company to standardize sizing across all Macy’s private brands. Universal sizing makes shopping less of a guessing game for customers and returns less likely, Erusha-Hilleque said.

On 34th will officially debut in mid-August with about 750 items that range from a basic tank top at $19.50 to a leather jacket for $299.50. Its shoe collection will launch in spring 2024.

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Shrinking food stamp benefits for families mean yet another challenge for retailers

A worker carries bananas inside the Walmart SuperCenter in North Bergen, New Jersey.

Eduardo Munoz Alvarez | AP

For some shoppers who already struggle to cover grocery bills, the budget is getting tighter.

This month, pandemic-related emergency funding from the Supplemental Nutrition Assistance Program, formerly known as food stamps, is ending in most states, leaving many low-income families with less to spend on food.

More than 41 million Americans receive funding for food through the federal program. For those households, it will amount to at least $95 less per month to spend on groceries. Yet for many families, the drop will be even steeper since the government assistance scales up to adjust for household size and income.

For grocers like Kroger, big-box players like Walmart and discounters like Dollar General, the drop in SNAP dollars adds to an already long list of worries about the year ahead. It’s likely to pressure a weakening part of retailers’ business: sales of discretionary merchandise, which are crucial categories for retailers, as they tend to drive higher profits.

Major companies, including Best Buy, Macy’s and Target, have shared cautious outlooks for the year, saying shoppers across incomes have become more careful about spending on items such as clothing or consumer electronics as they pay more for necessities such as housing and food.

Food, in particular, has emerged as one of the hardest-hit inflation categories, up 10.2% year-over-year as of February, according to the U.S. Bureau of Labor Statistics.

“You still have to feed the same number of mouths, but you have to make choices,” said Karen Short, a retail analyst for Credit Suisse.

“So what you’re doing is you’re definitely having to cut back on discretionary,” she said.

The stretch has made it impossible for some to afford even basic items. It’s still too early to see the full impact of the reduced SNAP benefits, said North Texas Food Bank CEO Trisha Cunningham, but food pantries in the Dallas-Fort Worth area have started to see more first-time guests. The nonprofit helps stock shelves at pantries that serve 13 counties.

Demand for meals has ballooned, even from pandemic levels, she said. The nonprofit used to provide about 7 million meals per month before the pandemic and now provides between 11 million and 12 millions meals per month.

“We knew these [extra SNAP funds] were going away and they were going to be sunsetted,” she said. “But what we didn’t know is that we were going to have the impact of inflation to deal with on top of this.”

Shifting market share

So far, retail sales in the first two months of the year have proven resilient, even as consumers contend with inflation and follow a stimulus-fueled boom in spending in the early years of the pandemic. On a year-over-year basis, retail spending was up 17.6% in February, according to the Commerce Department.

Some of those higher sales have come from higher prices. The annual inflation rate is at 6% as of February, according to the Labor Department’s tracking of the consumer price index, which measures a broad mix of goods and services. That index has also gotten a lift from restaurant and bar spending, which has bounced back from earlier in the pandemic and begun to compete more with money spent on goods.

Yet retailers themselves have pointed out cracks in consumer health, noting rising credit card balances, more sales of lower-priced private label brands and shoppers’ heightened response to discounts and promotions.

Some retailers mentioned the SNAP funding decrease on earnings calls, too.

Kroger CEO Rodney McMullen called it “a meaningful headwind for the balance of the year.”

“We’re hopeful that everybody will work together to continue or find additional money,” he said on the company’s earnings call with investors earlier this month. “But as you know, because of inflation, there’s a lot of people whose budget is under strain.”

Credit Suisse’s Short said for lower-income families, the food cost squeeze comes on top of climbing expenses for nearly everything else, whether that’s paying the electric bill or filling up the gas tank.

“I don’t think I could tell you what a tailwind is for the consumer,” she said. “There just isn’t a single tailwind in my view.”

Emergency allotments of SNAP benefits previously ended in 18 states, which could preview the effect of the decreased funding nationwide. In a research note for Credit Suisse, Short found an average decline in SNAP spending of 28% across several retailers from the date the additional funding ended.

Some grocers and big-box retailers could feel the impact more than others. According to an analysis by Credit Suisse, Grocery Outlet has the highest exposure to SNAP with an estimated 13% of its 2021 sales coming from the program. That’s followed by BJ’s Wholesale with about 9%, Dollar General at about 9%, Dollar Tree at about 7%, Walmart’s U.S. business with 5.5% and Kroger with about 5%, according to the bank’s estimates, which were based on company filings and government data.

Retailers that draw a higher-income customer base, such as Target and Costco, should feel comparatively less effect, Short said. If nothing else, the dwindling SNAP dollars could shift shoppers from one retailer to another, she said, as major players seek to grab up market share and undercut on prices.

Fewer dollars to go around

Another factor could make for a bumpier start to retailers’ fiscal year, which typically kicks off in late January or early February: Tax refunds are trending smaller this year.

The average refund amount was $2,972, down 11% from an average payment of $3,352 as of the same point in last year’s filing season, according to IRS data as of the week of March 10. That average payout could still change over time, though, as the IRS continues to process millions of Americans’ returns ahead of the mid-April deadline.

Dollar General Chief Financial Officer John Garratt said on an earnings call this month that the discounter is monitoring how its shoppers respond to the winding down of emergency SNAP benefits and lower tax refunds.

He said stores did not see a change in sales patterns when emergency SNAP funds previously ended in some states, but he added that “the customer is in a different place now.”

Tax refunds can act as a cash infusion for retailers, as some people spring for big-ticket items like a pair of brand-name sneakers or a sleek new TV, said Marshal Cohen, chief industry advisor for The NPD Group, a market research company.

This year, though, even if people get their regular refund, they may use it to pay bills or whittle down debt, he said.

One bright spot for retailers could be an 8.7% cost-of-living increase in Social Security payments. Starting in January, recipients received on average $140 more per month.

However, Cohen said, the cash influx might not be enough to offset pressure on younger consumers, particularly those between ages 18 and 24, who have just started jobs and face milestone expenses like signing a lease or buying a car.

“Everything’s costing them so much more for the early, big spends of their consumer career,” he said.

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