Retailers Weigh Concerns About Back-to-School Sales

Delta Variant Could Impact Shopping Habits

The back-to-school shopping season was expected to be one for the record books this year, as pent-up demand and stimulus checks drove sales of school supplies, clothes, and other items. However, the Delta variant of COVID-19 could change that for stores this fall. Shoppers in the US are growing wary of trying on clothes in stores, while others are beginning to spend less in case another COVID-19 surge negatively impacts the economy.

That sentiment could hurt sales at retailers including Target (TGT), Walmart (WMT), and Bed Bath & Beyond (BBBY). Retailers are facing tough comparisons in the third quarter thanks to strong demand last year. They need a big back-to-school period to meet rosy forecasts.

Consumers Cut Back Spending

Bed Bath & Beyond spoke about these trends last week, saying some customers are putting off back-to-school purchases. August tends to be the biggest back-to-school shopping month, but some families are waiting to do their shopping this year due to uncertainty about the school year.

The CDC changed its mask policy recently, calling on vaccinated people to wear masks indoors to slow the spread of the contagious Delta variant. This is causing some consumers to rethink their habits surrounding travel, entertainment, and shopping. A recent survey found that 56% of consumers said they were cutting back retail spending due to concerns about COVID-19, both from a health standpoint and a financial stability perspective.

Limited Choices Could Hurt Sales

In addition to the Delta variant, which is spreading rapidly among the unvaccinated, retailers are still contending with supply-chain issues and shipping disruptions related to the pandemic. These challenges could limit the amount of choices available to shoppers, which could also hurt retailers’ bottom lines.

Additionally, some retailers planned conservatively for the season, fearing they would be stuck with excess inventory. This could also cause issues if demand is higher than expected. After all, many retailers made their product and inventory decisions for the back-to-school season as much as nine months ago when vaccines were not available.

The back-to-school shopping season is an important one for the nation’s retailers. With the Delta variant of COVID-19 spreading rapidly, red-hot growth forecasts may need to be tempered.

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Amazon’s Online Ad Business Grows Thanks to Apple’s Privacy Changes

Amazon Picks Up Business From Facebook

Amazon’s (AMZN) online advertising business is growing, partially due to Apple’s (AAPL) recent changes to its privacy policies. Running ads on Facebook (FB) has become less effective since the iPhone maker’s new privacy changes went into effect in June, which is prompting marketers to shift dollars to other destinations like Amazon.

As it stands, Amazon, which was late to invest in digital advertising, only controls about 10% of the market. However, advertising is one of Amazon's fastest-growing segments. Revenue in Amazon’s “other” category, which mainly consists of ad sales, increased 87.5% during the second quarter of the year. Facebook’s ad sales also saw growth, but not as much as Amazon’s. The social media giant saw ad sales gains of 56%.

Apple Privacy Changes Hurt Facebook

The idea of Amazon chipping away at Facebook’s online ad sales would have been met with skepticism a few months ago. After all, Facebook has more than 2.8 billion active monthly users and social media has been a coveted place to reach potential and existing customers.

But Apple’s new privacy rules changed everything. Users have to opt-in to allow apps to track their internet behavior, which they say yes to tracking about 25% of the time. Facebook warned investors about these trends when it reported second-quarter results, saying Apple’s changes could hurt its full-year growth.

Brands Look Elsewhere

Brands which are shifting advertising dollars to Amazon and away from Facebook point to the privacy changes as a big reason for their decisions. Vanity Planet, which sells home spa products, slashed the amount it spends on Facebook by 22% in 2021, with half of that going to Amazon. Meanwhile, Shinesty, an underwear company which sells direct-to-consumers, is also increasing the money it spends on Amazon and keeping its budget on Facebook the same as it was last year.

Facebook is still a dominant player in online advertising, but Amazon is looking more attractive to marketers. It will be interesting to see how this fight plays out in the digital ad market which is valued at $191 billion, and growing.

Victoria’s Secret’s Resurgence

Victoria’s Secret Maps Its Comeback

Victoria’s Secret (VSCO) shares have climbed since it went public as a standalone company last week. After suffering years of declining sales as part of L Brands (LB), Victoria’s Secret is overhauling its marketing and streamlining operations in hopes of turning around the brand. Investors seem to be enthusiastic about the brand’s initiatives.

Despite the surge in its share price, Victoria's Secret is still trading at a big discount compared to its rivals in the undergarment market like Hanesbrands (HBI) and American Eagle Outfitters (AEO). That implies there could be room for appreciation if Victoria’s Secret’s strategies pay off.

Streamlining Operations

Victoria’s Secret made the decision to retire its trademark angels, replacing them with appointed brand ambassadors. The company is also naming a new board made up almost entirely of women. These moves have garnered a lot of attention for the retailer.

The company is also working to make its operations leaner in order to strengthen its balance sheets. Victoria’s Secret has been shedding underperforming stores, changing its marketing message, reducing the amount of inventory it holds, and scaling back promotions. The company also repurchased its swimwear business and is now selling maternity undergarments and shapewear. These strategies are designed to reduce operational costs and boost sales.

Victoria’s Secrets Bets Pay Off

So far, Victoria’s Secret’s initiatives seem to be paying off. In its fiscal first quarter, the company’s sales were higher than pre-pandemic levels despite the fact that the brand closed 241 stores last year. Operating margins were 15% in the quarter compared to 1% in 2019. It has also been able to maintain its number-one position in the women's underwear market despite competition from upstarts which have been quicker to embrace inclusivity. With $350 million slated for marketing this year, it has a lot of firepower to maintain that lead and spread a more inclusive message to consumers.

Victoria’s Secret is working to regain strength after years of declining sales. It will be interesting to watch as the brand continues to build its business on its own terms.