Ahead of new tariffs on Chinese goods set to hit everything from tracksuits to ski gloves, second quarter earnings reports from big retailers have been a mixed bag. Affordable, big box and discount brands like Target fared relatively well, while sales from higher-end companies such as Victoria’s Secret and Nordstrom disappointed yet again.
Razor-thin profit margins call for creative tactics from the retail industry, and some are experimenting with partnerships and e-commerce fusions. Kohl’s, for example, is rolling out a new “Amazon returns” partnership, while Nordstrom is investing in e-commerce and apparel on-demand by expanding the “Pick Up in Store” option.
Here’s a run-down of how some key players fared, and what it means for retail landlords:
Victoria’s Secret
With the online retail takeover, new tariffs and a destructive news cycle, Victoria’s Secret has been having a difficult time. The lingerie brand’s net income was down seven percent in the second quarter after four straight quarters of decline. Victoria’s Secret parent company L Brands told investors that it has $3.2 billion in lease obligations. Same-store sales were down 1 percent overall.
Victoria’s Secret was criticized after chief marketing officer Edwart Razek told Vogue in a 2018 interview that trans models should not be cast for the lingerie brand, famous for the array of supermodels it has featured over the years. After hiring openly trans model Valentina Sampaio earlier this month, L Brands CEO Leslie Wexner announced Razek is stepping down.
But that may be just the surface of Victoria’s Secret’s clash with the political and cultural zeitgeist. Wexner, an associate of the deceased sexual predator, hosted Epstein at his Ohio mansion, where a woman accused Epstein of assaulting her. Wexner also “turned over” a massive Manhattan mansion he bought for $13 million to Epstein — without an exchange of money.
While representatives for L Brands have denied that Epstein was ever employed by the brand, others report that the pedophile, popular with celebrity scientists and the political elite, served as a “talent scout” for the lingerie brand. L Brands’ well-documented connections to Epstein are unlikely foster consumer goodwill as Victoria’s Secret prepares for new tariffs.
L Brands announced in March that it would close 53 Victoria’s Secret stores across the country, about 4 percent of its total number of stores. Analysts have said the brand is particularly exposed to the decline of shopping malls in the U.S., and the second quarter results only further solidified those troubles.
Luxe layaway at Nordstrom
Nordstrom, which operates 381 stores in the U.S. and Canada and will soon open a flagship at Extell Development’s Central Park Tower, reported second quarter sales of $3.87 billion, down from $4.07 billion the same time last year. Still, that beat Wall Street’s estimates and sent the stock up 5 percent the day after its disclosure.
Nordstrom hopes to increase its foothold through its local market strategy — enticing consumers with amenities and services — and sees New York City as a key part of the initiative. Along with the flagship store, which will open in October, Nordstrom will add two “neighborhood hubs” in NYC in September, the largest market for online sales, according to the company’s second quarter filings. The stores will be located at 13 Seventh Avenue in Greenwich Village and 1273 Third Avenue.
Nordstrom may be looking to increase its “Buy Online and Pick Up in Store” sales in New York City, which tripled in the Los Angeles market in July. Nordstrom expects to see a significant increase in Manhattan sales this year and next.
Kohl’s, Target, TJ Maxx
Despite citing “increased traffic” from their novel idea to partner with Amazon to allow customers to return goods purchased from Amazon to any of their stores, Kohl’s continued to slip for the third consecutive quarter. Online shipping costs and deep discounts to clear out stale inventory were responsible for a 43 percent decline in share price since last year. In all, though Kohl’s beat Wall Street’s expectations at $1.55 adjusted earnings per share, net sales fell short at $4.17 billion ($4.22 billion was estimated).
Target, meanwhile, was steady Eddie once again. For stores that had been open for more than a year, the retailer reported 3.4 percent uptick in sales, with nearly half of that attributed to same-day fulfillment. Overall profits jumped 17 percent and it beat Wall Street’s estimate forecast across the board.
Target lists $36 billion in land and building assets, up from $34 billion last year. Over the last year, Target has been paring down the size of its large stores, which comprise most of its portfolio. But Target has expanded its smaller-sized stores, at 49,000 square feet and below, from 1.6 million to 2.3 million square feet. The retailer also seems to be weathering the e-commerce and tariff storm, although it may just be in the eye of the hurricane.
“Off-price” brand TJX, parent company of TJ Maxx and Marshalls, did well in Europe and Australia, but had just a modest showing in the U.S., its top market, especially when compared to its excellent second quarter in 2018. Comparable-store sales growth rose just 2 percent in the U.S., with rising supply costs contributing to narrowing profits. Overall, TJX reported a six percent increase in sales during the second quarter, though it excludes e-commerce sites, another sign that while specialty and luxury retailers may falter, consumers are still buying everyday items.
TJX has $7.7 billion in long-term lease liabilities, according to its second quarter earnings report.