How long can the consumer hang on?

Speaker A: What Gap came out with was this kind of slinky polyester happy stripe mesh. I think people just didn't get it. Hi, I'm Daphne Howland.

Speaker B: And I'm Dani James and we're reporters at Retail Dive. This is our podcast where we look into the biggest retail trends shaping the industry.

Speaker A: We cover the important news trends and happenings in retail, and we often go into the story behind those stories too.

Speaker B: Plus we'll be talking to some industry experts along the way.

Speaker A: This is the back room.

Speaker B: Welcome to the back room, everyone. We are here in the heat of July to look back at how retail has done this year so far. And we're going to frame that conversation through the lens of talking about a very interesting apparel retailer that we all know and love, Gap. And Daphne did some incredible recent reporting about sort of a, ah, rare mission for the brand recently. And so Daphne, can you tell us a little bit about how Gap had been doing and what this miss was for them Recently, Gap has gotten really interesting.

Speaker A: Uh, well, first of all, I don't know about you. Their cats, I add, made me really happy last year. And then young Miko did an ad for them that I also watched multiple times.

Speaker B: They've got Zac Posen now, I mean,

Speaker A: right, doing Gap Studio, which is sort of like their elevated. We're getting all the press releases about who wore Gap Studio to the Oscars or the Met gala. In fact, what you're talking about, this rare miss from Gap was a Zac Posen effort, which was to take the crazy stripe. It used to be called Crazy stripe from the 90s wool sweaters, holiday sweater, heavy cotton sweaters, and turn it into a summer mesh made out of mostly polyester with a little elastane with a photo realistic image of that, those thick cotton knitted. You can picture like thick yarn, everything like the thick cozy yarn that you got at the holidays, picture of it screen printed onto the mesh. And people were not happy about that.

Speaker B: Right? And I have to say even I was aware of kind of the, I mean, lore around this sweater on the second hand market. So I. When were the stripes initially, the stripe sweater initially came out? Was it the 90s or the early 2000s?

Speaker A: It sounds like it was both. I remember this, this, it used to be called Crazy Stripe. In this new iteration, um, the summer version on polyester mesh, they called it Happy Stripe, um, the Crazy stripe. I, I do feel like it shows up once in a while. You might see a scarf. But mostly if you go to ebay, say and just search for Gap, Crazy Stripe. You're gonna see all these vintage sweaters made out of cotton and lambswool. Like, like, high quality material. Yeah. It's not everyone's cup of tea. Uh, my take is that this is a sweater that is adorable on the under 12 set. Say, maybe the under fives, even. But it was a hit for everybody, uh, back in the day.

Speaker B: I know that I've seen leading up to this kind of reinvention of it by Zac Posen. Like, people loved the catalog images of it almost, like, more than maybe just to actually have, like, there was a nostalgia attached to definite nostalgia, which is

Speaker A: one of a, uh, Gap. Gap is leaning in. You know, we were great in the 90s, so we're gonna try. I think they're trying to pull in their past as they work on their comeback.

Speaker B: They're trying to make Gap great again. Um, and so part of that has been really successful campaigns. Like you mentioned, Cat's Eye especially. And this reinvention of the colorful stripe nostalgic sweaters for the summer. It didn't land, is what I'm understanding.

Speaker A: Not land. I think my favorite comment from someone who was excited about the reissue said, oh, I'm so happy. I remember wearing that sweater for picture day in third grade. Like, that was the vibe. That was the vibe. What Gap came out with was this kind of slinky polyester, uh, happy stripe mesh. I think people just didn't get it for the most part.

Speaker B: Yeah, yeah. And, you know, I should say they even put a dress version, if I'm correct, of this material. The mesh version was made into a special dress for Chase Infinity of, um, one battle after another. She wore it to the BET Awards this year, and she looked great.

Speaker A: Looked great.

Speaker B: I don't think there's any denying that. But, you know, they didn't. They had special versions out to the public as part of the collection. Um, I know there is a moment right now happening in just retail of a certain subset of consumers, not sure how big, who crave natural material. So I think there was a bit of this, like, conversation about quality and, you know, polyester and elastane versus, like, you know, wool. Not that we should ever expect people to wear wool sweaters in the heat of the summer.

Speaker A: Well, so, yeah, so there are a series of choices, right? You're going to do this in the summer. If you're going to do this in the summer, you're not. You're not even going to do it in the heavy. There are cotton versions of this sweater. You're not going to do those heavy cotton sweaters. Even as I looked into this story, people don't really understand that a lot of the moisture wicking, summer heat ready or friendly fabrics are actually made out of polyester.

Speaker B: Yeah.

Speaker A: Um, and so that this mesh is arguably I actually wasn't able to get my hands on, um, was out of stores, it was out online, so I wasn't able to get my hands on it. But arguably it could have been a performance fabric of some kind with the print of a thick stripes lambswool sweater.

Speaker B: Yeah, it's interesting, I'll say that. Uh, it's interesting but I just think. And you know, so there was some backlash and did it seem like Gap responded to that at all in terms of their rollout or have they been mums the word about the collection?

Speaker A: I could not get Gap Studio to um, answer any of my copious number of questions as I looked into the fabric, as I, I did find a Vogue article from last year that mentioned that Gap Inc. CEO Richard Dixon does not like this fabric. But I couldn't get details about why he doesn't like the fabric. Um, mainly though, as I talked to my sources, this was not as big of a fail maybe as I uh, thought going in that really. Okay, you, maybe you're going to make a few mistakes along the way. If you're trying to have fun, if you're trying to play around with your. Because you'll, you'll notice a lot of the comments. People will say bring back the wool, the lamb's wool. And, and I. Are those people really going to buy a uh, happy stripe Lambo sweater from Gap even at the holidays?

Speaker B: Are they going, might I add expensive? Um, you know, I mean it's like careful what you wish for. Yeah, it, it, I think it's tough sometimes to tell. There was definitely some type of social media backlash how significant it actually was to be even considered a fail.

Speaker A: Yeah, who knows exactly.

Speaker B: A miss is maybe more like it. I think.

Speaker A: A miss. Yeah, I think it was a miss. And, and I m. Don't know, maybe they get points for trying. I'm not in. I'm not, we're not here to hand out points to any one brand. But like in the scheme of things, um, in, in Zach Posen's, you know, Instagram post on this effort, his enthusiasm for it was seem genuine and.

Speaker B: Mhm. So uh, so there's something to be said there about, I mean at the very least it's, it's a sign once again that they are tuned into what the people are interested in. I think at the very least, even if they haven't hit the execution, they are aware of the nostalgia that has formed about the brand and they're trying to execute on it. Um, and I think on that topic, so maybe shifting to how did they do in Q1 with earnings? Um, I'm not sure. Daphne, if you can speak to more about how Gap the Brand did in Q1, but also Gap Inc. At Large, because they have a few other brands

Speaker A: in their portfolio, I would say that Gap Inc. At large definitely wants to talk about how Gap the brand did because the Gap the brand I m remember correctly sending sales were up 10%. Comps were up 10%. And really none of their other brands, Old Navy, which is their powerhouse, um, actually performed underwhelmed in Q1 because they said Mrs. On it was a miss on dresses. They made a mistake with their dresses. No one bought their dresses. Um, gap up 10%. Banana Republic did okay. Athleta is not doing so well still,

Speaker B: which, yeah, has been the thread for a while. Um, but it sounds like I remember in your reporting, Richard Dixon, CEO at Gap Inc. Was still expressing some confidence in Athleta.

Speaker A: Um, so maybe, yeah, he wants to stick with them. I think he believes maybe in the yoga slash athleisure space. So, you know, we'll see. But Gap, I don't know. Uh, when do you declare the comeback has is on? You know, great question.

Speaker B: You know, and, and maybe listeners, if you have any thoughts on that question, let us know. Reach out to us via email, please. We'd like to know what you think, but my initial thought on that question is, you know, let's give it a fiscal year. Like, let's get, um, we need a full fiscal year at the very least to know. But, um, ah, they're hitting the nail with the Gap brand.

Speaker A: So after the, after the, the stripe mesh debacle seems like too strong of a word, but let's just say it was a miss. They came out with a capsule, a denim capsule collection with Haley, um, Bieber, who. That sold out immediately. And then they restocked it and it sold out.

Speaker B: Huge hit. So. Yes. And it's just guys, it's just baggy jeans. Um, not to dumb it down, but it is just baggy jeans. And they put it on Haley Bieber. And that can do wonders, as it turns out.

Speaker A: Yeah, so.

Speaker B: So. And it was, it put the, the mesh situation to.

Speaker A: It's like, to rest.

Speaker B: Like nobody is talking about it. Yeah.

Speaker A: So that's so in the past.

Speaker B: Right. So they're clearly trudging along. Um, how has the rest of, how did the rest of your kind of apparel and department store be do in Q1? I know you did some reporting on generally Q1 across your, your space has some interesting insights I think into the economy at large is what I'm hearing.

Speaker A: So you and I both. So I think you covered Victoria's Secret Q1 a lot like they did well in Q1. Retail sales in general, which I think both you and I covered in the first quarter did um, surprisingly well. Like consumer confidence is down, but retail sales are up. We um, separate for our tracker, we separate out our, the categories that we cover and that tends to be more discretionary which should theoretically be under the most pressure. But it really hasn't been. But you know, I was talking to Simeon Siegel and he was like Q1 might be a bit of an outlier. Um, and it's all about tariffs and how tariffs did, didn't really hit last year until after Q1. Right.

Speaker B: Mid year later in the year really

Speaker A: almost Q3 for a lot of people. So the price hikes that hit consumers or that retailers were kind of grappling with didn't really start to take effect till Q3. So. So the comps in Q1 this year are nice and high because the price increases are in effect but they're being compared to Pre price increase Q1 of 2025. So that has me zeroed in on what's going to happen. Probably not Q2. I think Q3. Q3 is going to be the telltale quarter because then consumers in Q4 are like oh we'll, we'll spend again and so it'll be interesting to see. Yeah.

Speaker B: And I think yeah, the tariff conversation or the, the point at which tariffs really hit companies is super important. The, the details is all are always in the comps. What's it like, what type of comps? And it's so company specific as well. You know I think a good example of that is um, five below. I, I did a report on their Q1 when they released earlier this year and they had net sales jump by like 33% year over year and it was huge. Comp sales increased 22%, nearly 23 I think. But a lot of that was disproportionate growth from transactions with like viral trends right now. Which for five below means squishy toys. Um, there's a lot of squishy toys being bought by children is my understanding of the situation. So even, even five below I think there was A lot of analyst commentary about like okay, well we're kind of dealing with a lucky comp situation and it next year it'll be really hard to beat these Q1 comps, um, or just results in general. So yeah, the tariff conversation is interesting. I know for Walmart on my side. Um, Walmart is, is often a very successful business. So rare that we ever have a miss on their quarter. Um, and this was no different. Their first quarter grew just above 7% year over year. Um, in terms of revenue however, uh, they even noted that they took a 175 million dollar hit to operating income because, because of higher than planned fuel costs in the quarter. So you know, the war in Iran has now created a new confluence of issues on top of tariffs and right now we have new tariffs. By the way, um, Daphne, can you speak a little bit about. I think you did some recent reporting on fuel and gas prices, am I right?

Speaker A: So um, June, June was another kind of happy quarter for retail sales because gas prices went down under $4. Four, um, dollars is the new psychological marker, it seems like.

Speaker B: Yes.

Speaker A: Uh, I feel like there was a time when $3 was the psychological breaking point, but.

Speaker B: Right.

Speaker A: Do you ever watch old episodes of Law and Order and it says like A$52 a gallon and you're like your

Speaker B: eyes go out of your head. Yeah, no, we keep upping the ante and we. The uh, new, the new benchmark is $4.

Speaker A: Yes. So for a good part of June, the average price of gas across the US was under $4. I think that loosened up a lot of change in people's pockets and came through in June. Well that's now been undone. The barrel of oil at the end of last week as we're recording now was up over over a hundred dollars which is uh, one of the highest I think benchmarks levels that we have even seen.

Speaker B: Right. So it's an ever at this, at the current state of geo, geopolitical situations, um, the fuel similar to tariffs. Actually one day it feels like we have no tariffs and one day it feels like fuel costs are dropping and then everything can change in the next day or week. Um, so it'll be interesting to see how that impacts our next month of retail sales numbers. It'll be interesting to see the next quarter how things are, are playing out. Um, you know, some, some areas I think in Q1, at least across retail, there are people who can, there are companies who continue to do really well. Ulta, for example, in terms of beauty, specialty, beauty, retail, ulta, their prestige Sales continue to continue to do really well in Q1, um, which is in comparison to mass, you know, lower, uh, priced items. But yeah, prestige continues to do really well for them. Mass makeup was relatively flat in comparison. Yeah. And their overall net sales had increased just above 11%. Comps were up about 5% for the quarter. So I think we're seeing some interesting stuff. We saw some interesting stuff in Q1 is what I'm saying in terms of an appetite for certain discretionary spending and who's doing that spending. Um, and this confluence of, of several geopolitical factors I think will continue to yield very interesting results this next half of the year.

Speaker A: And, and what are they? Where's the money coming from? I think is a question that I have. Um, my eye doctor had a lot of availability this summer. They usually book many weeks and months ahead. And I thought are people not getting their eyes checked? And is that because, you know, health care, medical expenses is showing up as something that's going up? Is that actually making it easier to buy a better tube of lipstick because you're gonna postpone your eye appointment? I don't know. I do know that when I talked to Marshall Cohen at Circana for my Q1 story, he was saying back to school has been kind of disrupted as far as a season. It doesn't fall cleanly into Q3 anymore. So retailers might kind of, their Q3 might get hit by the fact that people will wait to buy certain things they're not going to get maybe all their school clothes until they really need them. Like their winter jackets.

Speaker B: Yeah, I think back to school. So you know, obviously we have our traditional holiday period. It's almost, you know, back to school is like its own, not holiday season, but it is a huge shopping season um, for traditional back to school supplies. But you know, you're getting kids new clothes as well. Um, if they're really lucky they're getting like new backpacks, things like that. Um, for this school year. So huge point of reference for us at this time of year. Some of the recent cuz back to school is happening right now. We're, we're recording this towards the end of July. Um, I think a lot of places go back to school in August. It's been a minute since I've been in school. Um, but some of the surveys that we've seen have shown and, and some of the announcements from retailers that I've covered about back to school have shown there is clearly some pressure on the consumer who's doing back to school shopping, which would Be parents. And I think one survey from OMNISEND had shown 40% of parents are expecting to be more financially stressed this year, this season compared to last back to school season in 2025. And in kind of like a really Sad point, uh, 45% of households are planning to use Buy now, pay Pay later financing for back to school purchases. That's an increase from about 39 last year in that survey. Um, which is to say people are stressed, they're looking at pricing. I think it'll be interesting to see how retailers do back to school this year. All of the big players in their back to school sale announcements, you know, Target, Walmart, um, the dollar stores even have been very focused on providing pricing that is on par with 2025 or even in Walmart's case, they had announced, you know, the 14 most popular back to school products were going to be at 2019 pricing. So there is a marketing language and pricing conversation going on with back to school that I think is speaking to the needs of the consumer right now and that they do care about price and they're trying to save some money. Um, and some of the data has shown that parents are willing to cut back in other areas of spending to afford these things for their kids. Um, so it's a really interesting moment for retail. It will be interesting to see what retailers say about back to school specific results in the next quarter.

Speaker A: It's interesting too because when, uh, you're talking about the language, you know, Amazon Prime Day happened early this year, guessing they're going to have another one in October like they do, but I'm noticing, and we haven't written about this, but I'm noticing language in the emails that I get from brands. I'm noticing phrases like Black Friday in July, Christmas in July. It almost feels like maybe retailers are trying to advertise massive discounts, but maybe inject some kind of levity into the whole thing, maybe to take away the desperation of it, I don't know, but

Speaker B: maybe there's desperation all around is what we're seeing.

Speaker A: It feels like maybe Prime Day came a little early because everyone joined in on that, of course, but maybe they needed another sale day because now they're like calling it Christmas in July.

Speaker B: I, I mean, and what about the Hanukkah in July? But no, yeah, I think, I think we're, we're definitely seeing more. Summerween continues to be an increasingly popular thing for retailers to talk about. Um, we kind of talk about this every year. But yeah, I, if companies, brands, retailers are definitely trying to like bring more. I feel like there used to be a time when you wouldn't hear anything about major sales or holiday promotions from retailers until the proper holiday period. And now they're trying to extend that to the full year. We have two prime days. We've got Christmas in July now. So the desperation is going to all around. Yeah.

Speaker A: And I think it's sort of what you were saying. The desperation is really coming from the consumer. They're not going to spend without a significant discount. That's just what it feels like. Except unless you're in the upper echelons, like among the wealthiest households.

Speaker B: Mhm.

Speaker A: Although some of our reporting shows that some of those um, households feel maxed out because you know, that's why Danny, they've got like three houses and really expensive cars and, and really expensive. Lots of things. So relatable.

Speaker B: Um. No. Right. Poor, poor them. No, we, it's true because for the last several months and I've done some features on this as well, all the dollar stores and Walmart have talked about how they are getting more and more uh, what they would call a high income household as a customer. They keep. That's their biggest gains in new customer acquisition is that economic group. And for them that means households with 100k and above, um, annually. So not the richest, maybe not the type of consumer group that has three houses in a yacht. But um, behaviors are shifting at the very least to, to a certain degree. So we will continue to watch some of these things. We're in H2 now. That means we're going to be having tons of earnings coverage coming up about what different retailers are reporting. I think we'll see some interesting new insights that tie into what Daphne and I just talked about. So stay tuned for all of that coverage at Retail Dive. If you're looking for some holiday preview insights, please check out our free live event that's going to be happening on September 16th at 12pm Eastern Time. That will include Daphne, who's going to be moderating a session, as well as one of our senior editors, Kara. So check out the sign up link for that on our website. So you'll get some exclusive tidbits if you attend that. And thank you for listening.

Speaker A: Thanks Danny M. This episode of the Back Room was produced and edited by Caroline Janssen. Please be sure to like, rate and subscribe wherever you get your podcasts.