00:00I want to start with more of the home improvement type stores because we have Home Depot coming up tomorrow.
00:07We have Walmart a little bit later on in the week.
00:10And there seems to be this reluctance, if you take a look at the past couple of months, to spend on big ticket items.
00:17I wonder, in your view, whether you think that we're going to see that reluctance front and center this week.
00:23Yeah, I think that the desire by the consumer to spend on big ticket items, whether it's homes or cars or large tickets, will continue to go on through the holiday season.
00:31There's been a continual drive by a consumer to save their dollars and get the most that they can out of their spend.
00:38And we did a survey of consumers, over 1,000 consumers, a couple of months ago.
00:42We found out it was the broad spectrum of the 1,000 consumers said they were spending less this year in 25 than in 24.
00:49Of course, when you break that down, though, just the top 10% of the U.S. earners are spending more.
00:54So that means that the bottom 90% of the U.S. consumers won't be spending as much.
00:58So they'll be going to value retail to get their most bang for the baller.
01:02So when you look at Walmart, for example, I'm bullish on them.
01:04And I'm very bullish on TJ Maxx and Ross's example.
01:07I think people like Home Depot and Lowe's are struggling to find a way to get that consumer to come into the store more often because they're not spending money on home improvements today because they just don't know where their dollar is going to spend.
01:16That's really interesting, Naveen.
01:18So to kind of crystallize that point, it sounds like you're saying there's a trade-down trade that exists when you're talking about a Walmart, a TJX, for example.
01:27But Home Depot, Lowe's, they don't necessarily have that.
01:31Yeah, they don't bring the massive consumer in to spend across the board.
01:34I mean, one of my examples would be Walmart, for example, saying that Walmart's one of the only few retailers besides maybe Target and a couple others that can bring a family in and do all their shopping at one time.
01:45Walmart is the number one grocer in America today.
01:4720% of all grocery sales are going to Walmart.
01:49That tells you you can go to Walmart and you can pick up not just groceries but blue jeans, toys, and home accessories.
01:56That's a distinction that Walmart plays.
01:57I think they can lean into that much more in the holiday season.
02:00I am curious, Naveen.
02:01I think the last time we spoke, we kind of talked about the idea that you kind of had this upper income group of people who were kind of keeping the whole economy afloat, basically the top 10% or so of earners out there.
02:13And they were accounting for the vast majority of spend.
02:16Not to be pedantic about it, but does it matter if the other 90% is not spending?
02:20I mean, if we know that the top 10% has the money and is willing to spend?
02:24I'm not sure that's a sign of a healthy economy.
02:26It may be a sign of an economy that's doing well because of the top 10%.
02:29But I think we've talked about this for years.
02:31What we need is a healthy economy that's across all income brackets.
02:34And if we lean too heavily on that top 10% to drive it, over time what we're going to see is that that second, third, or fourth tier consumer will continue to hold on their dollar longer and longer.
02:44And they may actually say, you know what, we just won't spend money this year.
02:47We'll hold back for sales post-holiday.
02:50When you look at sales post-holiday, what does that mean?
02:53That's margin contraction for the retailer.
02:55We need all consumers to be able to have a healthy approach to consumer spend.
02:58And right now the sense is they're not seeing the biggest back to the back across the entire consumer spectrum.
03:04That, to me, is worrisome long trend.
03:06I mean, based on the work you do, I am curious about just how some of these companies are approaching this.
03:12Earlier this year, I was looking at some data showing the number of retail closures, of physical store closures.
03:17And this was backdated to 2024 data.
03:20But still, it gave you a sense that there has been a retrenchment even heading into, at least what at the start of the year was a relatively decent economy for spending.
03:28Are you seeing more evidence that retailers will pull back even further either this year or into next year?
03:34I'm not seeing evidence of retailers pulling back.
03:37I think the healthiest retailers, and we've got them on the list that you have showed a little while ago on the graphic, to me, they'll continue to grow and they'll continue to spend.
03:43I think the big burst of closures and contractions we saw, that's probably at its peak in 25.
03:50I don't see 26 between that.
03:51Between Joann's and Bed Bath & Beyond, Party City, a number of those, those are significant closures that provide a lot of opportunity for a lot of retailers to grow.
03:59That, I see, will continue on in 26, maybe into 27.
04:03But I think I look forward to that area between 27 and 28 as the big challenge as we don't see development feeding new opportunities for retailers to grow.
04:10I think that's when I'll start looking at concerns about the real estate sector.
04:14Can they support the supply of the value retailer?
04:17Well, I'm curious about something you just said there.
04:19The idea with some of those closures, like Party City, Joann's, when you say the ability to grow, is that that business transfers to the surviving businesses that maybe pick up some of what those companies did?
04:30That's right.
04:31So there's a lot of retailers that actually took advantage of those closures, right, to make sure they could grow.
04:35So whether it's Dollar General and many others, for example, that were doing that, Burlington, as a prime example, took advantage of that back in the summer of this year and prior to last year.
04:44Well, all those stores have been swallowed up, and you can't count year after year on more and more closures to provide the supply for retailers that want to grow.
04:53So at some point, that's going to catch up to the retailers.
04:56To me, because we're at historic lows on development, that 27 to 28 time period is when I start getting worried about the fact that counting on bankruptcies to supply the growth of retailers is a challenging game you can't count on for too long a term.
05:09And, Naveen, I do want to acknowledge that we're having this conversation on the 17th of November.
05:14Of course, we are rattling into the holiday season.
05:17Holiday shopping has certainly started.
05:19And when you take a look at where we are right now, what are you seeing in terms of promotions, in terms of, you know, deals coming through?
05:26And how does that compare to maybe last year and the year before?
05:30Well, we're in a heavily promotional environment right now.
05:33We also have a very, very short holiday season, right?
05:35Thanksgiving is at the end of the month.
05:36So we'll have less than 25 days for the holiday season, if you want to call it that.
05:40And so to me, Black Friday is no longer the significant retail consumer day.
05:45Promotions from every retailer I know of and I'm on their mailing list is very heavy right now, 20, 25, 30 percent to spend online.
05:51To me, if we continue to see that, it may be a good sign for consumers who are bargain hunting.
05:55But from a retailer standpoint, that to me shows challenge because once you get to December 26th and 27th, you'll have to slash prices even more so to make room for your spring and your summer gear.
06:06So I'm thinking low, low probability of a big, big boom in retail consumer spend after December 25th.
06:14It's funny you say that because, I mean, I've seen I've been getting a ton of emails already with some of those discounts you just talked about.
06:20Is there a sense, though, that those discounts will ratchet up as we get closer to Christmas or will it be like kind of stagnant?
06:28No, I think we'll see a lot more ratcheting up.
06:30Because we're having such a low, such a short holiday season, the consumers are looking for the best bargain.
06:37Every retailer is fine for the same dollar.
06:38The quicker you can get that sale and promotion out there to move that product, the better.
06:42So I'm seeing those promotions happening now and we'll continue to see them.
06:45Don't be surprised that the last week, the week and a half of the holiday season, we'll see massive discount cuts to get that product moving off the shelf.
Be the first to comment