It was a strong week for retail earnings. That doesn’t spell a consumer comeback

A Foot Locker, Inc. store. 

Courtesy of: Foot Locker, Inc.

Retail’s biggest winners during first-quarter earnings aren’t thriving because consumers are suddenly spending more on discretionary goods — it’s because they’re executing well and cash-strapped shoppers are choosing them over competitors. 

If there’s one takeaway from results posted by the largest U.S. retailers over the last few weeks, it’s that shoppers are still spending — but being far more selective about where.

Feeling the brunt of sticky inflation, high interest rates and an economy that feels tougher than it may actually be, consumers are prioritizing purchases that have the right combination of value, convenience and fun.

Companies like Abercrombie & Fitch, TJX Companies and Gap impressed Wall Street with their results, while others like Kohl’s, American Eagle and Target disappointed.

Take Gap and Foot Locker — two unlikely winners that posted results on Thursday. Both retailers are in the midst of ambitious turnaround plans and are performing better than expected because of new strategies they’ve implemented. 

Gap posted positive comparable sales for all four of its brands — Athleta, Old Navy, Banana Republic and its namesake banner — for the first time in “many years,” beating Wall Street’s expectations across the board, the company said. 

For years, Gap had been losing market share to buzzy competitors. But under new CEO Richard Dickson, the marketing guru credited with reviving the Barbie franchise, the apparel chain has focused on financial rigor, brand storytelling and product development. In under a year, Gap’s sales and profits have meaningfully improved, and its brands are beginning to be part of the cultural conversation again.

A few weeks ago, actor Anne Hathaway went to a Bulgari party wearing a white Gap shirt dress that had been designed by the company’s new creative director, Zac Posen. Critically, Gap dropped the $158 dress to consumers, and it sold out within hours. This combination of marketing and exclusive product drops is what Gap had long been lacking, and what competitors had already been doing. 

Foot Locker had declined over the last couple of years, but with the right combination of new strategies and a little bit of luck, its turnaround is showing signs of life

Under CEO Mary Dillon, Foot Locker has worked to change its stores, where it does more than 80% of its sales. It has tried to create not only a better shopping experience for consumers but also a better place for its critical brand partners.

Instead of two walls of shoes with competing brands mixed together, Foot Locker is changing its fleet so the brands have their own unique displays. Its new “store of the future” concept at a New Jersey mall that brings that strategy to life has become its best performing store in North America in just a few weeks, Dillon told CNBC, adding that brands are thrilled with the new design. 

The shift couldn’t have come at a better time. Years into Nike’s strategy to cut out wholesalers and sell directly to consumers, the retailer is realizing it went too far and is now changing course.

With refreshed stores and better product displays, consumers are converting more, too, and paying full price — even Foot Locker’s lower-income shopper. 

“Our consumer … this is a category that is very important to them. So when people have discretionary income, it may be limited, but you’re gonna prioritize where you spend it, right?” said Dillon. “We’re proving that people are willing to spend full price, but you have to have the right products and serve it up in a way that makes it enticing, right? So that’s where the whole customer experience really matters.” 

Elsewhere, Dick’s Sporting Goods posted a solid first-quarter report Wednesday, as executives said average selling prices and transactions rose and that they saw no signs of consumers trading down for cheaper options. That may not mean shoppers are spending more broadly, though: Dick’s has long been considered a best-in-class operator that offers a solid shopping experience, meaning it can win even when consumers are picky with their spending.

Denim wars

Two retailers that didn’t have great quarters — American Eagle and Kohl’s — tell a story of executing poorly or missing out on trends. 

American Eagle handily beat earnings estimates thanks to a new strategy designed to boost profitable growth, but it fell short on revenue and issued cautious guidance that was slightly below Wall Street’s expectations. 

American Eagle president and executive creative director Jennifer Foyle told CNBC that the brand is working to cut out items that aren’t landing with shoppers and dig down into the ones that are. She said the retailer was overly focused on jeggings in the past but now, low-rise, baggy fits are in. 

During a store visit at the American Dream mall in New Jersey on Thursday, an associate told CNBC that the location didn’t have the low-rise, baggy fit in-stores, and they were only available online. Meanwhile, there was a wall of jeggings. Still, denim was a strong performer for the company during the quarter, and it had a variety of other styles that resonated with customers at the location, the company said.

Denim is having a moment with shoppers. Search levels for denim are hitting peaks in a 20-year data set, particularly for categories like tops and dresses, according to a Morgan Stanley research note. 

Kohl’s is missing the mark in a far more meaningful way. The retailer posted dismal numbers on Thursday, as both earnings and revenue fell well short of expectations. It cut its full-year forecast and its shares plunged more than 20%, the stock’s biggest single-day percentage decline ever.

The weak results illustrated a challenge the retailer is still contending with: Keeping up with trends and staying relevant. 

CEO Tom Kingsbury told CNBC he expects the “head-to-toe” denim trend to play a role in the back half of the year, but it could already be out of style by the time Kohl’s gets around to adding the clothing items to its shelves.

“Denim is OK business for us. I mean it’s really not the most important time for denim,” said Kingsbury. “We’re selling shorts and tees. And more, you know, warm weather product.” 

Gap, one of the longtime denim leaders, didn’t seem to be concerned about denim going out of favor because the weather is warmer. CEO Dickson said the company is getting ready to launch its “exclusive lightweight denim fabric” dubbed “Ultra Soft” in time for the summer.

Failing to chase trends has been an ongoing issue for the aging department store Kohl’s. Kingsbury told CNBC in March that Kohl’s used to buy product for the juniors department catering to teen girls — one of the most trend-driven areas of its stores — 12 to 14 months in advance. When the apparel hit the sales floor, it was “dead on arrival.”

In an age where viral TikTok videos dictate the life and death of trends, it’s more important than ever for retailers to stay on top of what’s working with customers and what isn’t. They’re not just competing with legacy players, they’re also vying for customers with innovative yet controversial upstarts like Chinese-linked Shein, which can go from an idea to an online product in a matter of weeks.

That’s a far cry from the lead times at Under Armour, where it currently takes about 18 months to get a product from an idea to a showroom floor. During an earnings call with analysts on May 16, CEO Kevin Plank called the system “just plain uncompetitive in the 2024 landscape” as he laid out a plan to streamline the process

Meanwhile, Abercrombie & Fitch posted another stellar set of results, even as it begins to lap tougher comparisons. It has posted torrid growth in part because the company is responsive to its customers and a has nimble supply chain that has allowed it to chase trends quickly and efficiently. 

It posted its strongest first quarter in history, and now expects sales to grow 10% in fiscal 2024, up from previous guidance of between 4% and 6%. 

CEO Fran Horowitz told CNBC that low-rise, baggy jeans are also uber-popular with its customers. During a recent visit by CNBC to its Hollister store just a short walk from American Eagle’s outpost, plenty of those style of jeans were on display for shoppers as soon as they walked into the store.

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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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Gap shares pop as company’s holiday earnings blow past estimates, Old Navy returns to growth

A general view of an Old Navy store. 

Gap Inc.

Gap’s largest banner Old Navy returned to growth for the first time in more than a year during its holiday quarter as the retailer delivered earnings on Thursday that came in well ahead of Wall Street’s expectations. 

Sales at Old Navy grew 6% to $2.29 billion, and Gap’s overall gross margin surged 5.3 percentage points to 38.9% thanks to fewer markdowns and lower input costs. Analysts had expected a gross margin of 36%, according to StreetAccount. 

Shares of Gap jumped about 5% in extended trading following the report.

Here’s how the retailer did in its fourth fiscal quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG, formerly known as Refinitiv:

  • Earnings per share: 49 cents vs. 23 cents expected
  • Revenue: $4.3 billion vs. $4.22 billion expected

The company’s reported net income for the three-month period that ended February 3 was $185 million, or 49 cents per share, compared with a loss of $273 million, or 75 cents per share, a year earlier.

Sales rose slightly to $4.3 billion, up about 1% from $4.24 billion a year earlier. Like other retailers, Gap benefited from a 53rd week during fiscal 2023 and without it, sales would’ve been down during the quarter. The extra week contributed about four percentage points of growth during the fiscal fourth quarter, the company said. 

Comparable sales during the quarter were flat, compared to estimates of down 1.1%, according to StreetAccount. In-store sales were up 4% while online sales decreased 2% and represented 40% of total revenue. 

The retailer decreased inventory by 16% during fiscal year 2023, and with those levels now in check, Gap is working to hold the line on promotions and drive full price selling.

During the quarter, Gap saw higher average selling prices across all of its brands, and it expects to grow its gross margin by at least a half percentage point in fiscal 2024.

“We were the authorities of taking on-trend basics, expressing it in ways that drove cultural conversations. At its best, we were a pop culture brand that did much more than sell clothes and as you know, we all know, we lost our edge. We devolved from a pop culture brand to a clothing retailer, and today we’re moving again,” CEO Richard Dickson told CNBC in an interview.

“We’re getting our vibe back.”

Staging a turnaround

Headed into the holiday season, Gap struck a cautious tone with its outlook as it warned of an “uncertain consumer environment,” and on Thursday, it reiterated those concerns. 

In the current quarter, it expects sales to be roughly flat, compared to estimates of down 0.2%, according to LSEG. For the full year, it expects sales to also be roughly flat, on a 52-week basis, compared to estimates of up 0.5%, according to LSEG. 

“I think we have to look at 2023 where we did see a lot of volatility and uncertainty in the environment. We have inflation, student loan payments, high interest rates, we had dwindling consumer savings. Now fortunately, despite many predictions to the contrary, we didn’t see a recession in the year but our industry was definitely affected,” said Dickson.

“While the apparel market is currently expected to decline in 2024, there are always winners in every market, and we’re seeing the consumer react to newness,” he said. “We’re seeing innovative marketing drive traffic, and it’s inspiring us to believe that we are on the right track with our reinvigoration playbook.”

It’s been a little over six months since Dickson, the former Mattel boss credited with re-igniting the Barbie brand, took over as Gap’s chief executive, and in that time, he’s focused on breathing relevancy back into the retailer’s legacy brands and getting them back to growth. 

Last month, Gap announced it had tapped fashion designer Zac Posen to be its creative director and Old Navy’s chief creative officer. Given its size and contributions to revenue, Gap cannot succeed if Old Navy isn’t winning, and for more than a year, sales have been down even at a time when consumers are hungry for bargains and affordable options. 

Posen, who got his start designing couture gowns and specializes in women’s dresses, is a key hire to Dickson’s executive team. He helps fill in the gaps when it comes to design and apparel, which are areas where Dickson lacks expertise as he’s spent the majority of his career at a toy company. He’ll also play a key role in reigniting cultural relevance across Gap, said Dickson.

“His creative expertise, and his clarity on culture, you know, they’ve consistently evolved American fashion, making him a great fit for the company as we look to energize our culture of creativity and we look to reinvigorate these storied brands,” said Dickson. “His role as chief creative officer at Old Navy is really to harmonize, orchestrate and dial up the storytelling across product and marketing.”

Prior to Posen’s appointment, Dickson hired Eric Chan, the former CFO of the LA Clippers, to be Gap’s chief business and strategy officer. He also hired his former colleague Amy Thompson, Mattel’s former chief people officer, to take on the same role at Gap. 

Banana and Athleta lag

On the back end, Gap has made improvements in growing its gross margin and streamlining its cost structure, but it’s been grappling with a steep decline in sales across its four brands: its eponymous banner, Old Navy, Athleta and Banana Republic. 

Gap and Old Navy have seen some signs of progress but Athleta and Banana Republic have been dragging on the overall business. 

When it comes to Banana, Dickson told CNBC he is “encouraged by the brand’s aesthetic direction” but said it’s going to take time to build back its momentum.

“We gotta get really strong in fixing the fundamentals and strengthening these fundamentals in order to drive more consistent results,” said Dickson. “And that’s what we’re really going to be focused on, our day to day execution, building upon the insights that we’re learning.”

Athleta is still in a state of recovery after numerous leadership shifts and a number of missteps when it came to designing the right type of product in the right styles and colors. It’s also missed the mark in its stores and its marketing, said Dickson.

In August, Athleta named former Alo Yoga President Chris Blakeslee its next CEO, and Dickson said the brand has made strides since he’s come aboard.

“We started the year with a much cleaner palette and we’ve seen early successes in these new arrivals at full price and we’re getting encouraged by the consumer’s reaction,” said Dickson. “I really like where the team is going. We’ve got a new drop strategy, which they’ve been testing, there’s new innovation, color has started to enter the stores and reacted really well.”

Here’s a closer look at each brand’s performance during the fourth quarter:

  • Old Navy: Sales were up 6% to $2.29 billion while comparable sales were up 2%, ahead of estimates of up 1%, according to StreetAccount. 
  • Gap: Sales were down 5% to $1.01 billion, weighed down by selling the brand’s China business, while comparable sales were up 4%, well ahead of estimates of down 1.3%, according to StreetAccount. The brand saw strength in the women’s category. 
  • Banana Republic: Sales were down 2% to $567 million were down 2% while comparable sales were down 4%, better than the 6.7% decline analysts had expected, according to StreetAccount. The company noted that Banana has made progress in “elevating its aesthetic” but re-establishing the brand “will take time and there is work to be done to better execute many of the fundamentals.” 
  • Athleta: Sales were down 4% to $419 million while comparable sales were down a steep 10%. Gap noted that Athleta’s performance improved compared to the prior quarter, but said sales are sluggish as the brand looks to hold the line on pricing and lap a prior period of elevated markdowns. 

Correction: This story has been updated to correct the spelling of fashion designer Zac Posen’s name.

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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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Retailers urge Congress to crack down on theft, as industry ramps up lobbying effort

Representatives from more than 30 retailers joined a major industry lobbying group on Capitol Hill on Thursday, as they ramped up pressure to pass a law that backers say will curb retail theft.

The National Retail Federation escalated its campaign to rally support for the bill, known as the Combating Organized Retail Crime Act, which would make it easier to prosecute theft as a federal felony and set up a system for governments to share resources on crime. The retail lobby group dubbed its event “Fight Retail Crime Day.”

Before holding individual meetings with retail officials, the bill’s co-sponsors joined NRF CEO Matthew Shay in a press conference outside the Capitol — where they framed the legislation as critical to retailers’ bottom lines and their employees’ safety.

“You also have to recognize, this is not just the theft, but the danger to the employees, the cost to the consumers, and then the impact upon the individual retailer,” one of the bill’s co-sponsors Sen. Chuck Grassley, R-Iowa, said at a press conference. “[Organized retail crime] has to be dealt with in a comprehensive way. And that’s what our legislation is all about.”

Sen. Chuck Grassley, speaking at a press conference for the lobby group’s “Fight Retail Crime Day.”

Courtney Reagan | CNBC

Organized retail crime is different from shoplifting. The NRF defines it as “the large-scale theft of retail merchandise with the intent to resell the items for financial gain.” It usually involves multiple people who steal large amounts of goods from a range of stores, which a so-called fencing operation then sells, according to the group.

The NRF and individual retailers have spoken more than ever in recent months about how retail crime affects their profits, their employees and their customers. Target even cited the trend as it announced it would close nine stores.

Despite those comments, a survey released by the NRF last month found retailers’ losses from theft are largely in line with historical trends, but most respondents reported violence associated with the acts is getting worse. Much of companies’ lost inventory can also come from internal theft or management issues, as William Blair analysts wrote in a research note Thursday.

Even so, the industry has pushed for federal and state laws that aim to crack down on crime. Retailers continued their campaign for policy changes in Washington on Thursday.

The Combating Organized Retail Crime Act was reintroduced earlier this year. It seeks to create a new multi-agency group under the Department of Homeland Security that would pool information and intelligence from many states and local law enforcement sources. Officials want to better detect, track and prosecute members of organized crime rings with new federal standards. 

American Eagle Outfitters chief global asset protection officer Scott McBride, who is meeting with lawmakers to rally support for the law, pointed to the collaboration as a major benefit of the proposal.

“That’s one of the main purposes that allows us to have a charter within a federal agency to actually help us create a clearinghouse to aggregate properly to investigate more efficiently and more in depth,” he said.

While retailers say organized retail crime could lead to higher prices for shoppers and store closures, many of the co-sponsors are focused on what retailers have said is escalating violence associated with the theft.

The NRF’s national retail security survey showed two-thirds of retail respondents reported seeing increased levels of violence and aggression from ORC offenders in 2022 compared with 2021. In the 2021 survey, 81% of respondents reported more violence than in the year prior.

McBride noted that some areas of the country have had a harder time hiring and retaining store employees because of the increase in violence. Most retail store employees are instructed not to intervene when theft is taking place because of the risk of violence.

Rep. Dina Titus, D-Nev., told about a recent incident she witnessed in a Walgreens.

“The person came up with a backpack and just started scraping eyelashes into the backpack and walked out,” she said at the press conference. “I said to the sales lady, ‘Did you see what that guy just did?’ She said, ‘Yeah, he comes in here two or three times a week and we can’t do anything about it because management is afraid somebody might get hurt.'” 

The industry has also focused on the amount of stolen goods needed to prosecute as a felony depending on the location. Trade groups have said many crime rings know the law, and steal just enough to stay below it in each incident.

National Retail Federation CEO Matthew Shay speaking at a press conference for the lobby group’s “Fight Retail Crime Day.”

Courtney Reagan | CNBC

The bill would establish a new federal felony threshold that is also aggregated over any 12-month period rather than a threshold per incident.

“What this legislation will do, is allow prosecutors in the states, if they choose to, to pursue a federal remedy, instead of, or in addition to, a state remedy, when certain thresholds get met,” Shay told CNBC. “So if the total dollar value of the stolen guards exceeds $5,000 in a single year, local prosecutors can pursue a federal charge.”

Some criminal justice experts have questioned whether lowering the threshold will reduce crime, and said enacting stiffer penalties could potentially hurt marginalized groups.

While the members of Congress at the press conference, along with retail representatives and the NRF, acknowledge there is wide support for the measure, time is ticking on the legislative year to move it forward to committee and beyond.

McBride acknowledges passage of the bill would not be a panacea, but “it just adds another layer … to help the retailer and disincentivize the bad guys from using [organized retail crime] as a means for financing their criminal activities.”

The Combating Organized Retail Crime Act would follow another law known as the INFORM Act that went into effect at the end of June, which requires online marketplaces to verify the identity of their sellers with the goal of deterring the sale of stolen or counterfeit goods. Retailers that don’t comply will face fines.

When asked Thursday, Shay said it’s still too early to tell what the effects of the new legislation will be.

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The big AI and robotics concept that has attracted both Walmart and Softbank

Symbotic technology in use at a Walmart facility.

Courtesy: Walmart

Venture-capital giant Softbank notched a $15 billion-plus gain on its 2016 deal to buy Arm Holdings when the artificial intelligence-enabling semiconductor firm went public last month. But not as many investors know about Softbank’s “other” big AI investment, Wilmington, Mass.-based software and robotics maker Symbotic, which Walmart has taken a big stake in itself.

That may soon change.

Symbotic, a company that has already generated market heat selling AI-powered robotic warehouse management systems to clients including Walmart, Target and Albertson’s, is partnering with Softbank to play in a potentially giant and transformative market. The two are teaming up in a joint venture called GreenBox Systems which promises to deliver AI-powered logistics and warehousing to much smaller companies, delivering it as a service in facilities different companies share. They say it’s a $500 billion market, and an example of the kind of change AI can bring to the economy at large.

If it works, GreenBox will reach companies that could never afford the multi-million dollar required investment, in the same way cloud computing puts high-end information tech within reach, said Dwight Klappich, an analyst at technology research firm Gartner.

“I’ve seen a lot of robotics tech and I’ve never seen anything like it in my life,” TD Cowen analyst Joseph Giordano said. “Compared to what it replaces, it’s like day and night.” 

Erasing memories of a big WeWork real estate blunder

It might even mute the memory of Softbank’s most disastrous commercial real estate management investment ever, the notorious office-sharing company WeWork. 

Like WeWork, GreenBox is a promise to fuse technology and real estate. Indeed, its  sales pitch of “warehouse as a service” recalls the “space as a service” slogan in WeWork’s 2019 IPO prospectus almost exactly. The big difference: with WeWork, outside analysts struggled to identify what technological advantage WeWork ever offered clients over working at home or in traditional offices, let alone one that justified its peak valuation of $47 billion. WeWork today is worth under $150 million and is now under bankruptcy watch as it warned in August of its potential inability to remain “a going concern,” and more recently stopped making interest payments on debt, asking lenders to negotiate.

At GreenBox, the technology is the whole point, Giordano said. And unlike WeWork, which wanted people to change the way they used offices, Symbotic and GreenBox are out to let companies that already run warehouses boost efficiency and profits, he said. 

“Contract warehousing exists today – but those operations are mostly manual,” said Robert W. Baird analyst Rob Mason.

Softbank, perhaps not surprisingly, doesn’t like the WeWork analogy even being mentioned, with spokesperson Kristin Schwarz declining an interview request for Vikas Parekh, Softbank’s representative on Symbotic’s board (Parekh is also on WeWork’s board), after the firm learned CNBC would ask about it.

“If we are to put Vikas on the record for this, the interview would need to stay focused on GreenBox, and not on any other SoftBank topics,” Schwarz wrote in an e-mail. 

Softbank owns more than 8% of Symbotic, according to data from Robert W. Baird, and took it public through a special purpose acquisition company last year. Softbank also owns 65% of the GreenBox venture, which launched with $100 million in investment by the two companies. Walmart owns another 11% of Symbotic, according to a proxy statement from the robotics company, and is by far its biggest customer until the GreenBox venture ramps up, accounting for almost 90% of revenue.

“We share the same vision of going big and going fast,” Symbotic CEO Rick Cohen said. “We believe this market is massive.”

Symbotic has generated stock-market excitement even before the GreenBox deal. Its shares are up 190% this year. Sales in its most recent quarter climbed 77%, and orders for its existing warehouse-management systems jumped to $12 billion – a backlog it would take the company years to fulfill  Add in the $11 billion of Symbotic software and follow-on services GreenBox committed to buy over six years in July, and that backlog soars to $23 billion for a company that expects its first billion-dollar revenue year in fiscal 2023, and to break even on an EBITDA basis for the first time as a public company in the fourth quarter.

The best indication of the future may be from Walmart, which bought its Symbotic stake as part of the companies’ deal to automate the retailer’s 42 U.S. regional distribution centers for packaged consumer goods.

The product is the reason why, analysts say. 

At prices of $25 million to hundreds of millions, according to a conference call Symbotic held with analysts in July, a Symbotic system blends as many as dozens of autonomous robots that scoot around warehouses at speeds up to 25 mph, moving and unloading boxes from pallets and picking orders with AI software that optimizes where in a warehouse to put individual cases of goods, and lets boxes be packed to the warehouse’s ceiling, Giordano said, wasting much less space in the building. 

The system works something like a disk drive that uses intelligence to store data efficiently and retrieve the right data on demand – but with boxes of stuff. And a large warehouse can use several different systems, piling up the required investment to get moving.

Because Symbotic’s system can track inventory down to the case easily, where stuff is put can be matched much more easily to incoming orders, making it possible to more fully automate order picking. It can also match the design of outgoing pallets to the layout of the store the pallet is headed to, speeding up unloading and shelf stocking, Klappich said. 

But the biggest innovation the tech allows is in business models, rather than in technology itself. That hasn’t spread outside of giant companies yet, but Giordano and Mason say they think it will.

The AI’s precision will let multiple companies share the same warehouse, and even commingle their goods for efficient shipping without confusion, much as cloud computing lets multiple clients share the same computer servers, Mason said. 

“Through sharing infrastructure, you can get out of the infrastructure business and focus on what’s important to you,” Klappich said. “Larger-scale automation without the capital expense has been a challenge.”

Born out of stealth work with Walmart, minting a multi-billionaire

The idea grew out of a vision Cohen had when running his family’s grocery distribution company, C&S Wholesale Grocery, which he has grown to $33 billion in annual revenue from $14 million since 1974.  Symbotic was founded in 2006, and worked in stealth mode for years while refining its prototypes with Walmart. 

“I’ve spent my whole life in the outsourcing and [logistics] business with C&S, so, this — the ability to run warehouses for people — has always been on the plate, Cohen said in the July analyst call. “We said we’re going to take care of Walmart first. …We are now starting to say, I think we can do more.”

Symbotic and C&S have made the 71-year old Cohen one of America’s richest men, with a net worth hovering around $15.9 billion, according to Forbes. 

Symbotic teamed up with Softbank to build GreenBox in order to preserve its own capital, Cohen told analysts. The joint venture was initially capitalized 65% by Softbank and 35% by Symbotic, for a total of $100 million. Analysts say the venture will require much more capital, possibly raised by having GreenBox itself borrow money in the bond market. Symbotic said it will use its share of the profits from sales to GreenBox to keep its equity stake in the joint venture around 35%.

“The question has been, who has the capital to set it all up?” Klappich said. “Softbank could be the key because they have deep pockets.”

The joint venture will buy software from Symbotic, then turn around and sell the warehouse space, equipment and related services as a package to tenants. 

Many questions remain, and potential threats from Amazon, private equity

Much else about the new company remains unknown, beginning with the identity of its not-yet-announced chief executive, Mason said. The venture could either develop warehouses or rent them, though Symbotic said it will probably mostly rent them. Pricing for the warehouse-as-a-service is undisclosed. 

But the rise of Greenbox more than doubles Symbotic’s potential market, and nearly doubles its backlog. Symbotic has said that its total market is about $432 billion, a figure chief strategy officer Bill Boyd repeated on the conference call when the GreenBox alliance was announced.  Early adopters will be in businesses like grocery and packaged goods, with Symbotic expanding into pharmaceuticals and electronics over time, according to Symbotic’s annual federal regulatory filing this year.

The GreenBox market for smaller companies shapes up as another $500 billion of possible demand, Gartner’s Klappich said. The estimates are based on the number of warehouses in those industries, the likely percentage of warehouses in each whose owners can afford the technology, either independently or through GreenBox, and the average price of Symbotic-like systems. 

The third quarter of the company’s fiscal year, which ends in October, illustrates how the company’s profits might scale. Revenue jumped 77% to $312 million, and its loss before interest, taxes and non-cash depreciation and amortization expenses shrank to $3 million. Mason says the company will turn profitable on an EBITDA basis in the fiscal year that begins this fall, before orders from GreenBox begin, and EBITDA will be “in the mid-teens” as a percent of sales by the following year.

Clients stand to save money all the way through the warehouse, Klappich said.

Giordano estimated the savings at eight hours of labor per outgoing truck. The technology can also cut space rental costs by allowing goods to be packed closer together and stacked higher. 

Using the facility as a service will let seasonal companies cut back on the space and robot time they use during slow periods, rather than carry them all year. The warehouse should run with many fewer workers, Giordano said. And GreenBox will pay for upgrades to robots and software every few years, rather than making tenants invest more, he said.

Walmart led investors on a tour of its Brooksville, Fla. warehouse in April, and said technology investments like the Symbotic alliance will let profits grow faster than sales. More than half of distribution volume will move through automated centers within three years, improving unit costs by about 20% as two-thirds of stores are served by automated systems. The company has said little about the impact on jobs, but CEO Doug McMillon said overall employment should stay about the same size but shift toward delivery from warehouse roles. 

Competition will be arriving soon enough, analysts say. Building something like Symbotic, and especially moving it down into the realm where companies other than global giants can afford it, takes a combination of technology, money and vision, Klappich said. 

Amazon could expand into the space, using its warehousing expertise in a service that resembles its Web hosting business model, or private-equity firms awash in investable cash might acquire combinations of companies to produce competing products and business models, Klappich said.

For Softbank, the payoff if GreenBox works is potentially huge. Analysts on average project Symbotic shares to rise another 53% in the next year after pulling back amid recent recession fears, according to ratings aggregator TipRanks. With post-IPO estimates arguing that Arm shares will stagnate, and taking into account that Softbank paid a reported $36 billion for Arm in 2016, it’s possible Symbotic will be the bigger win in the end, at least on a percentage basis, as the 65% share of GreenBox rises in value.

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Jim Cramer’s top 10 things to watch in the stock market Monday

My top 10 things to watch Monday, August 14

1. It’s a big week of retail earnings. Is Target (TGT) undervalued? Is Walmart (WMT) overvalued? Is Club name TJX Companies (TJX) going to start with its usual up two points and then cascade down two? That’s what you need to be ready for. TJX and Target report second-quarter results on Wednesday, while Walmart reports on Thursday.

2. Morgan Stanly on Monday names Club holding Nvidia (NVDA) a top pick, while predicting a beat and raise when the company reports second-quarter results on Aug. 23. But I really want to warn people that I don’t think it’s ready to be bought.

3. Mizuho on Monday raises its price target on Amgen (AMGN), a very low-risk pharmaceuticals company, to $223 a share from $214, while maintaining a neutral rating on the stock. Elsewhere, Jefferies raises its price target on Amgen to $310 a share, up from $275, and reiterates a buy rating.

4. U.S. Steel (X) rejects an unsolicited takeover bid from rival Cleveland-Cliffs (CLF) that would have valued the former at roughly $7 billion. Cliffs is willing to buy anything. But why would the Federal Trade Commission ever allow this? U.S. Steel said Sunday it’s reviewing its strategic options.

5. Citigroup on Monday downgrades Urban Outfitters (URBN) to neutral from buy ahead of the clothing retailer’s second-quarter earnings on Aug. 22, while raising its price target to $40 a share, up from $36. The firm expects URBN to deliver an earnings beat, but thinks market expectations are too high going into the print. I like this company and find this downgrade disturbing.

6. Following a red-hot initial public offering last month, Morgan Stanley on Monday initiates coverage on beauty-and-wellness company Oddity Tech (ODD) with the equivalent of a hold rating and $57-a-share price target. The bank cites “strong long-term revenue growth prospects” for Oddity, but thinks the positives are already priced into the stock’s valuation.

7. Bernstein on Monday downgrades hotel chain Marriott International (MAR) to market perform, or neutral, from outperform, arguing the stock’s short-term upside is limited by its increased valuation this year and a slowdown in the U.S. luxury space. But the firm increases its price target on Marriott to $218 a share, up from $204.

8. Mizuho on Monday raises its price target on restaurant-management-software firm Toast (TOST) to $30 a share, up from $27, while maintaining a buy rating on the stock, following its “very strong” second-quarter results. Baird, conversely, designated Toast a “bearish fresh pick” following its big run of late. The firm has a neutral rating on the stock, with a price target of $25 a share.

9. China’s Country Garden, the country’s largest private real-estate developer, suspends trading of its onshore bonds on Monday, in a sign it could soon move to restructure its debt. Shares are down roughly 17%, weighing heavily on Hong Kong’s Hang Seng Index. The news is the latest sign Beijing will likely need to step in to shore up China’s beleaguered real-estate sector.

10. Piper Sandler on Monday raises its price target on Club name Coterra Energy (CTRA) to overweight, or buy, from neutral, on expectations for “strong execution across the portfolio.” The bank increases its price target on the oil-and-gas firm to $35 a share, up from $30.

And remember to tune into the Club’s Monthly Meeting on Thursday at 12:00 p.m. ET.

(See here for a full list of the stocks at Jim Cramer’s Charitable Trust.)

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Walmart is bringing ads to an aisle near you as retailers chase new moneymakers

Walmart is turning more parts of its stores into advertising opportunities. For example, brands can buy a spot on its self-checkout screens.

Walmart

One of Walmart‘s latest offerings at its SuperCenters isn’t a hot new toy, snack flavor or sundress. It’s advertising.

Shoppers will soon see more third-party ads on screens in Walmart self-checkout lanes and TV aisles; hear spots over the store’s radio; and be able to sample items at demo stations.

Walmart’s push into advertising resembles similar moves by retailers like Kroger, which struck a deal to bring digital smart screens to cooler aisles in hundreds of its stores, and Target, which began testing in-store demos and giveaways, including a recent “Barbie” branded event with Mattel that took place at about 200 stores.

For Walmart, selling ad space to its wealth of existing partners is another way to capitalize on the company’s huge reach and to expand into higher-margin businesses. The discounter has nearly 4,700 stores across the U.S., with roughly 90% of Americans living within 10 miles of a Walmart store.

In the U.S., about 139 million customers visit Walmart stores and its website or app each week.

“When you think about our store, our store footprint and the percentage of Americans that we reach through our stores, we can deliver Super Bowl-sized audiences every week,” said Ryan Mayward, senior vice president of retail media sales for Walmart Connect, the retailer’s advertising business.

The company plans to ramp up in-store ads using its approximately 170,000 digital screens across its locations as well as 30-second radio spots that will be available to suppliers later this year and can target a specific store or region.

And it’s hoping at least one of the new advertising initiatives will be easy to digest: free samples in stores on the weekends.

Walmart plans to sell the demo stations to advertisers and bundle them with other ad formats that can run at the same time to make for a fuller campaign. QR codes at the demo tables will pull up online shopping options, meal ideas or seasonal information.

It tried out the new in-house approach of selling sampling stations in Dallas-Fort Worth and plans to offer the option in more than 1,000 stores across the country by the end of January.

Advertising still drives a small sliver of Walmart’s overall revenue. Its global advertising business hit $2.7 billion in the most recent fiscal year, which ended in late January. That’s less than 1% of Walmart’s total annual revenue.

Yet it is becoming a more meaningful growth engine for Walmart. CEO Doug McMillon said earlier this year that he expects company profits to grow faster than sales over the next five years, driven in part by higher-margin businesses, including advertising.

In the most recent fiscal year, Walmart’s global ads business grew nearly 30% and its U.S. ads business, Walmart Connect, rose about 40%. That’s a sharper gain than the approximately 7% increase in Walmart’s total revenue and Walmart U.S. net sales during the period.

The next frontier

As Walmart and other retailers grow their ad businesses, the store stands as the next frontier. Target, Kroger and others have pushed aggressively into retail media, a buzzy term used to describe marketing to shoppers based on customer data.

That side hustle has become a more substantial revenue stream for retailers, especially as brands look for new ways to reach big audiences. Retail media is on track to be a $45 billion industry this year, up 20% from the prior year, according to Insider Intelligence. The market researcher expects that growth to accelerate in the coming years and reach about $106 billion in 2027.

Yet up until recently, retailers, including Walmart, have largely focused on selling online ads and steered clear of adding digital signs or flashier ads to the places that draw higher traffic and drive the vast majority of sales: their own stores.

Walmart’s Mayward said the retailer has added advertising to stores “in a very deliberate and cautious way” after learning how shoppers respond to online ads.

When done right, he said ads can enhance the experience for shoppers and lift sales. For example, he said, a customer may spring for a sound bar after learning about the product on the TV wall when walking through the electronics department. They may decide to buy a jar of salsa after seeing a video of it near the aisle of their favorite bag of chips.

“It’s a complimentary advertising moment,” he said. “It’s helping you make connections between two different products and decide that you maybe need that second thing.”

Walmart is turning the approximately 170,000 digital screens across its U.S. stores into advertising opportunities. For example, a company that makes a snack or a beauty product can advertise in the TV aisle of the electronics department.

Walmart

According to Mark Boidman, head of media at New York City-based investment bank Solomon Partners, that proximity offers a unique opportunity that online advertising can’t replicate.

“It’s better to reach people with video when you’re aisles apart as opposed to miles apart,” Boidman said.

He noted it’s gotten harder for brands to get in front of large audiences as customers increasingly fracture into smaller groups that watch different TV shows, subscribe to different streaming services or tune in to different broadcast channels.

Plus, he added, they want to more closely track if marketing dollars lead to sales. Grocers and big-box retailers have valuable first-party data that can better measure that, since they can advertise a product and then use a loyalty program or sales patterns to see if it became more popular.

But that additional data can be a double-edged sword. He said companies must respect shoppers’ privacy concerns, too. If an advertisement is too targeted to an individual, they may feel creeped out.

The right balance

With the debut of more in-store ads, retailers risk those privacy concerns as well as backlash from shoppers who may see the ads as unsightly or irritating.

That’s already played out at Walgreens: The drugstore added digital smart screens that flashed ads on fridge doors in many of its U.S. stores. Some shoppers complained on TikTok and Twitter that the doors made it hard to find ice cream, pizza or other frozen and chilled items they wanted.

Walgreens CEO Roz Brewer, who stepped into her role after the deal got signed, didn’t like them either, according to a lawsuit filed last month by Cooler Screens, the company behind the tech. It alleges Walgreens was in breach of contract after breaking off an installation agreement.

The drugstore chain had agreed to install the screens in at least 2,500 stores across the U.S., according to the lawsuit, but Brewer squashed the rollout after visiting the stores and comparing the screens “to ‘Vegas’ in a derogatory way.”

Walgreens disputed Cooler Screens’ claims and said it terminated its contract with the firm based on its “failure to perform.”

Cooler Screens has converted stores’ frozen and refrigerated aisles into places where companies can advertise.

Cooler Screens

In an interview with CNBC, Cooler Screens co-founder and CEO Arsen Avakian acknowledged that bringing ads into physical stores is tricky. But he said stores need a more modern look that allows shoppers to search, sort and discover merchandise like they do online and in apps.

Kroger plans to install Cooler Screens in 100 stores by the end of year and reach 500 by next year. Walmart piloted Cooler Screens technology, but ultimately decided not to expand it.

Andrew Lipsman, a retail and e-commerce analyst at Insider Intelligence, said retailers have to tread lightly to avoid creating the real-world equivalent of pop-up ads.

“There’s a concern of it looking too much like Times Square,” said Lipsman, who previously worked for Cooler Screens and has closely followed retail media.

As retailers expand ads into stores, they can start with lower-risk spots like pharmacy or deli counters where customers may welcome a distraction as they wait, he said, adding that stores have plenty of subtle ads already. Brands pay for prominent spots at the end of aisles or for signs that spread the word about a seasonal snack, discount or new product.

And people have gotten used to seeing digital ads in other parts of the physical world, such as around the perimeter of major sports arenas.

“There’s digital signage everywhere,” Lipsman said. “It’s become pervasive across many contexts. It’s natural it’s going to enter the store.”

Disclosure: CNBC’s parent company, NBCUniversal, is a media partner of Walmart Connect.

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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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Target shoppers can now make a return without leaving the car

Target is dangling a new perk to get shoppers to swing by its stores: customers can make returns without leaving their car.

The curbside-returns service, which began last week at roughly a quarter of Target’s nearly 2,000 stores nationwide, will be available across the chain by the end of summer. 

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Target is sweetening its curbside-pickup service, Drive Up, to attract and retain customers as the retailer braces for a potential sales slowdown and tries to hang on to pandemic-fueled gains. Total annual revenue grew by about $31 billion – or nearly 40% – from fiscal 2019 to 2022.

Now, as shoppers become more budget conscious and buy fewer discretionary items, Target said it expects comparable sales to range from a low single-digit decline to a low single-digit increase this fiscal year. At an investor day in February, it projected full-year earnings per share of between $7.75 and $8.75, below Wall Street’s expectations of $9.23 per share, according to StreetAccount estimates.

The company hopes convenient perks like curbside returns will boost customer loyalty and jolt sales.

“Any time we remove friction from our guest experience it benefits the guests and benefits Target because they deepen their relationship with us,” Chief Stores Officer Mark Schindele said. “We’ve shown that with Drive Up overall. Guests try that service, they love it and then they shop our stores more often.”

Curbside pickup became a bigger sales driver for retailers’ e-commerce businesses, especially as shoppers tried to avoid crowds during the Covid pandemic. For some shoppers, the habit has stuck as work and home schedules are fuller and commutes are back — and retailers including Target and rival Walmart now aim to capitalize on that.

Click-and-collect, a term used to describe buying online and picking up purchases curbside or in store, grew from 6% of overall e-commerce sales in the U.S. in 2019 to 11% in 2022, according to data from Euromonitor, a market research firm.

Delivery still accounts for the majority of online sales, but click-and-collect drove about $114 billion of sales in 2022 — a jump from $36 billion in 2019, according to Euromonitor.

In the U.S., the vast majority of click-and-collect comes from curbside pickups, said Bob Hoyler, industry manager for retail research at Euromonitor. 

The market research firm anticipates click-and-collect sales in dollars will grow by 8% this year, compared with 2% for delivery. The growth will be fueled by consumers who opt for curbside pickup to avoid delivery fees or shipping minimums at a time of heightened price sensitivity, Hoyler said.

Target debuted Drive Up in 2017 as a test in Minneapolis, where the company is based. It expanded the service to stores across all 50 states in 2019. It added fresh and frozen groceries in 2020, and tacked on wine and beer the following year. 

Last year, the retailer expanded the service to allow shoppers to order a Starbucks drink to retrieve when they pick up their curbside order. The service is available at about 240 stores.

Sales fulfilled through Drive Up grew more than 70% in the fiscal year that ended in late January 2022, on top of a more than 600% boom during the prior fiscal year, the company said. Drive Up sales grew more than 10% in the most recent fiscal year.

Target’s same-day services, which include Drive Up, accounted for more than half of digital sales as of late January as consumers embrace convenience. Same-day services also include Target-owned delivery service Shipt and Order Pickup, which allows shoppers to retrieve an online purchase inside of a store.

The retailer’s average fulfillment cost per unit has fallen by 40% over the past four years as those services grow, Chief Operating Officer John Mulligan said at an investor day in February. More than 95% of Target’s total sales, including digital, are fulfilled in stores.

Other retailers have added to curbside pickup. Walmart rolled out curbside returns at all of its stores ahead of the 2022 holiday season. Dick’s Sporting Goods added curbside returns to its services in 2020 and offers it across all of its stores.

Neither company would quantify the use of curbside pickup or returns, but Walmart said it has seen nearly double the volume of customers using curbside returns from its launch across the chain last fall compared with this month.

At an investor event earlier this month, Walmart CEO Doug McMillon said the retailer is competing on convenience, too. He credited pickup and delivery for driving growth in recent years, and said the company’s recent survey results show customers are choosing the big-box retail giant to save time along with money.

Yet other retailers such as Kohl’s have eliminated curbside pickup. It ended the service last summer, swapping it out for a self-pickup service inside of stores.

The company’s shift to self pickup is part of efforts to cut costs, including by reducing its payroll, Chief Financial Officer Jill Timm said in September at a Goldman Sachs conference. She said Kohl’s is also testing self checkout and self returns.

For some retailers, the time and labor of curbside pickup can be hard to justify — especially since it encourages shoppers to stay in their cars rather than step into stores where they may fill up their carts with more purchases, Euromonitor’s Hoyler said.

Those concerns fueled skepticism of curbside returns within Target, too.

Most Target returns are made at the store, according to the company. Inside of a store, a shopper may swap out a returned product for another or grab an impulse item.

At Target’s investor day in late February, Citibank analyst Paul Lejuez asked if the retailer would ultimately miss out on purchases by adding curbside returns.

Schindele, the chief stores officer, said Target is focused on the lifetime value of a customer, not just the economics of a single transaction. He said allowing curbside returns also helps the retailer get unwanted items back on the sales floor faster and lowers the cost of mail-in returns.

He added that curbside pickup still inspires browsing and other purchases. On average, about 20% of customers who pick up Drive Up orders also make an in-store purchase on the same day, he said.

“What we find is when a guest uses Drive Up — and it could be Drive Up returns, it could be Drive Up purchase — we find that they spend more money in store over the course of the year.”

During tests of curbside returns, some shoppers have stopped by just to return an item, Schindele said. Others have picked up purchases while making a return. Still others have retrieved items they bought, made a return and gotten a Starbucks drink.

For Target, curbside returns could serve as a differentiator and a complement to the merchandise mix it sells, Hoyler said. Target’s sales focus is on general merchandise, such as apparel and beauty products, with only roughly 20% of its annual sales coming from grocery items. That’s much less than Walmart, which draws nearly 60% of its annual U.S. sales from grocery.

That general merchandise tends to be returned much more often than items like milk and bananas, he said.

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