A worrying pattern has emerged recently where retailers are reporting weaker sales, lowering their expectations for the rest of the year and predicting more frequent and deeper discounts. Macy’s and Estée Lauder gave dour outlooks for the remainder of 2024 last week, and Urban Outfitters on Thursday said they would need to promote their way out of an unexpected sales slump.

There are signs that the US economy is slowing down, including an uptick in unemployment. That doesn’t mean we’re headed for a recession — US retail sales were strong as recently as July — and interest rate cuts by the Federal Reserve, likely starting in September, could keep people spending. The S&P 500 is near a record high.

All that to say, we’ll learn in the coming months whether these dour forecasts from major retailers are genuine warning signs or examples of shrewd expectations management. What’s clear is that this week’s onslaught of earnings from major brands and retailers will be bumpy.

Gap Inc., which reports Thursday, is in many ways the perfect bellwether for this turbulent period. The company is powering ahead with its ambitious rebrand, including a fall campaign fronted by the singer Troye Sivan announced last week. Sales at all four Gap Inc. brands rose in the first quarter, beating forecasts. Investors are optimistic the best is yet to come; the company’s stock (which received a long-overdue makeover last week when it changed its ticker symbol to GAP) has risen nearly 20 percent this year.

Attempting to sell consumers on a new brand identity, and ideally convince them to pay more too, is infinitely harder in a down market (just ask Gucci). If Gap can deliver in the more turbulent second quarter, CEO Richard Dickson’s turnaround may truly be taking hold.

Another retailer to watch is Abercrombie, which reports Wednesday. If Gap is Gucci, Abercrombie is Miu Miu — too hot to care about trivial concerns like the global economy. In the first quarter, the company’s sales shot up 22 percent. Watch for what executives have to say about the strength of back-to-school sales, and whether they will need to lean on discounts to keep the good times going.

Other highlights for the week include PVH, which like Gap is hoping to prove with its earnings on Tuesday that a turnaround of Calvin Klein has legs. Nordstrom also reports that day. Thursday sees Victoria’s Secret report for the first time since announcing Hillary Super as its new CEO (she doesn’t start until Sept. 9, however), plus Lululemon, which is looking for its next act as the pandemic’s athleisure boom fades into memory.

The Week Ahead wants to hear from you! Send tips, suggestions, complaints and compliments to brian.baskin@businessoffashion.com.

Burberry Group Plc is on the verge of exiting the FTSE 100 Index, ending the luxury-goods maker’s 15-year stay in the UK blue-chip gauge.

Hampered by an industry-wide slowdown in demand and a faltering brand revamp, the firm’s shares have slumped by a third over the past three months, sending Burberry tumbling down the market-value rankings that index compiler FTSE Russell uses to determine changes to the benchmark.

Ahead of Tuesday’s quarterly announcement of provisional changes to the index, Burberry’s market capitalisation of £2.5 billion ($3.3 billion) puts it 140th in the FTSE 350 Index of the UK’s large and mid-cap stocks. That’s far below where it needs to be to retain its place in the FTSE 100, which it has been a constituent of since September 2009.

Burberry “looks a shoe-in for relegation from the FTSE 100,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

Burberry has been hit particularly hard by the demand slowdown gripping the luxury industry, especially in the all-important Chinese market. That resulted in a recent profit warning from the British firm, which didn’t immediately respond to a request for comment.

However, its woes have been a long time in the making.

Known for its trench coats with their distinctive checked lining, Burberry’s efforts to make the brand more upmarket to compete with the likes of French high-fashion houses like Louis Vuitton and Hermes have fallen flat with consumers. Frequent leadership changes also haven’t helped, with the company replacing its latest chief executive just last month.

The brand’s struggles to resonate with shoppers, especially in the inflation-squeezed aspirational segment, have been accompanied by plunging sales. Its shares have been notable under-performers, faring worse than fellow makers of high-end goods that are also trying to revamp their brands. Gucci owner Kering SA and Germany’s Hugo Boss AG have dropped 35 percent and 42 percent, respectively, this year.

“Burberry’s investment case remains under pressure with the brand now heading into unchartered territory of navigating a restructuring while still not giving up on its efforts to position itself as a ‘true luxury’ brand,” UBS Group AG analyst Zuzanna Pusz wrote in a note last month following the company’s profit warning and dividend suspension.

According to FTSE Russell guidelines, a stock will be removed from the FTSE 100 if its market capitalisation ranks 111 or below among eligible shares at the time of the re-balancing, while any that rise to 90th position or above join the index.

A strong contender to replace Burberry is insurance firm Hiscox Ltd., said Hargreaves Lansdown’s Streeter. Hiscox is among the highest-ranked stocks that aren’t already members of the index, Bloomberg data shows.

Final changes to the index will be announced on Sept. 4 after European markets close.

By Kit Rees and Joe Easton

Learn more:

Does Burberry Have the Wrong Strategy?

The British trench coat maker’s latest revamp has faltered. Some point to executional errors, but Burberry may need to rethink its strategy and become a ‘British Coach,’ writes Luca Solca.

The author has shared a Podcast.You will need to accept and consent to the use of cookies and similar technologies by our third-party partners (including: YouTube, Instagram or Twitter), in order to view embedded content in this article and others you may visit in future.

Subscribe to the BoF Podcast here.

Background:

2024 has brought forth the arrival of the “Sephora tweens,” which refers to members of Gen Alpha (roughly defined as those born between 2010 and 2024) who have enthusiastically taken to buying up skincare and makeup. This phenomenon, driven largely by beauty-related chatter on social media, has resulted in a new wave of brands catering specifically to this younger demographic.

“There are now teen brands, tween brands, 20-something brands, 30-something brands. … I think we can thank the DTC movement and everything that happened from 2014 on for this kind of innovation,” Rao says. “There’s been a total disruption in beauty overall with challenger brands like Glossier that have come and really taken market share away from the big conglomerates and companies … that have been household names for a really long time.”

This week on The BoF Podcast, senior correspondent Sheena Butler-Young and executive editor Brian Baskin sat down with Priya Rao, executive editor at The Business of Beauty at BoF, to delve into how tweens have taken over the beauty aisle and what this means for the future of the industry.

Key Insights:

• Kids have long experimented with beauty products, but today, they’re starting earlier and earlier. “If you look at social media today, it’s not just 10-year-olds or 11-year-olds. There are 5- and 6-year-olds putting on makeup and trying different lipsticks and lip glosses,” shared Rao. This early engagement with beauty is not just a passing trend, but is becoming a norm, fueled by the accessibility of products to try in stores like Sephora and the influence of social media platforms like TikTok.
• Another driving force behind this trend is the rise of celebrity-led beauty brands that resonate with young people. For example, Rare Beauty, founded by Selena Gomez, not only offers products but also promotes mental health awareness. “Tweens and teens can identify with these brands not just because of the products, but because of what they stand for,” explained Rao.
• The proliferation of skincare products has also led to some confusion and concern, with tweens using products like retinol that are meant for an older demographic. Brands and influencers play a crucial role in teaching young consumers what’s right for their skin. “Fear is not the way to lead here. It’s about education first,” advised Rao. Brands must strike a balance between engaging young consumers without overwhelming them with too many steps or products.
• As the beauty industry continues to evolve, brands that wish to stay ahead will need to be responsive to the needs of Gen-Z and Gen Alpha consumers. “Smart companies have to be agile and constantly communicate with their customers,” noted Rao. This means reflecting the diverse experiences of young consumers back to them, whether through representation in ad campaigns or through the products themselves.

Additional resources:

Sign up to The Business of Beauty newsletter, your complimentary, must-read source for the day’s most important beauty and wellness news and analysis.