This week’s earnings results provided further affirmation of our read of consumer spending pattern changes that emerged in July, which we call the “July Pause.” Our view is that the July Pause resulted from the news cycle, distraction from the Olympics (31M viewers per day according to Nielsen), heat waves, hurricanes, and other temporary factors, as well as non-transitory factors such as consumers across the income spectrum rejecting the high level of prices (which we are calling a “buyers strike”) and a further curtailment in spending by the less affluent due to the higher essential services expenses.
As such, we were not surprised to see the more affluent retailer Nordstrom raise its annual sales guidance despite the weaker July, as its traffic has bounced as shown in the chart below. By contrast, the more mainstream Kohl’s lowered its sales growth guidance. At the lower end, trends have substantially worsened and there has been no improvement in August as indicated by Dollar General's outlook.
On spending by income, Nordstrom CFO Cathy Smith said, “At Nordstrom stores, our higher-income customers, we saw spending improve the most out of that banner.” Nordstrom’s Anniversary Sale is a big event for the company; this year we’ve especially seen consumers respond to events and ways to save which given Smith’s comments (as well as Costco’s strong results) also is affluent consumers. Management said they were pleased with how the Anniversary Sale went this year and that sell-throughs (and by proxy conversion rate) were solid. As shown in the table below, minutes shopped were even with 2019, which is pretty remarkable for a department store.
On the namesake banner, Nordstrom CEO Erik Nordstrom said, “At the Nordstrom banner, consistent flows drove regular price sales, including during the Anniversary Sale. We also processed inbound merchandise and returns faster, enabling freshness in all channels...We have also made progress on implementing RFID technology across our locations. RFID enables faster real-time inventory data, helping us to improve the accuracy of our inventory. Not only does this technology provide us with new insights to improve product flow and reduce shrink, inventory accuracy enhances the customer experience, allowing us to fulfill the items our customers are looking for.” And Nordstrom President and Chief Brand Officer Pete Nordstrom said, “Our private brands helped improve the balance of price points in our selection. Customers are finding that the merchandise is high quality and offers a great combination of value and style. Although we still have a way to go, we're encouraged by the progress our private brands are making...Overall, customers responded well to our curated assortment, which helped to drive an increase in regular price sales and margin expansion in the second quarter.” (As a reminder, Macy’s is also considering radio-frequency identification (RFID) to prevent theft and working to turn its private brand business into a growth business; moreover, a lot of what Macy’s "go-forward" 350 stores is about was done by Dillard’s and is being done by Nordstrom.)
