ACTV - Will The Holiday Shopping Season Give A Boost To Retail Stocks?
2023-12-01 04:25:00 ET
Summary
- Outlook for retail stocks amid economic uncertainty.
- Will shoppers keep spending even with inflation high?
- What to expect this holiday shopping season.
Retailers are hoping for a boost from this year's holiday shopping season even as many consumers face higher living costs. MoneyTalk's Greg Bonnell discusses with Chris Graja, Senior Analyst, Retail with Argus Research.
Transcript
Greg Bonnell: Holiday shopping season is upon us, but after an earnings season where many retailers warned of slowing sales due to the high cost of living, will retail profits be squeezed? Joining us now to discuss, Chris Graja, a senior analyst for retail at Argus Research. Chris, great to have you back on the program.
Perfect time of year to talk retail, so let's get into it. We've heard the warnings. Will consumers open their wallets, and what will it mean for retail this holiday season?
Chris Graja: I mean, I think the first takeaway going into the holiday season is that people are always going to try to do what they need to do to make the holiday special for the people they care about. That may have implications in January. But, in general, people try to be optimistic for the holidays. And I think that's one of the positives.
If you look at the basic numbers, the GDP revision up today is very strong. The CPI has come down very nicely. Unemployment is low. I mean, when you look at it on the surface, it looks pretty good.
But the challenge is that, as you said, inflation is still high. Doug McMillon, the CEO of Walmart (WMT), said a couple of months ago that the cost of a basket of groceries is still probably 20% higher than it was before the pandemic.
So, if you're a family who's spending $200 a week on groceries, that's $40 a week, $160 a month of incremental expense that is weighing on your ability to make discretionary purchases. And that's where the biggest challenges are, whether it's from Tractor Supply (TSCO), where people are still buying -- they're still buying pet food. They're still buying things to care for their property, but they aren't buying big-ticket things, like trailers.
And we see the same thing at Home Depot (HD), whereas, during the pandemic, at Home Depot and Lowe's (LOW), people were buying multiple appliances. They were like, we need a new fridge. Let's get the dishwasher and the oven matching, so we all have them. Now, people are waiting to the very end and doing replacements.
And even at stores that sell much lower-priced things, people are switching down to store brands. They're making decisions as to how much they need to have. Maybe they're buying one and destocking their pantries from when they stocked up.
And the question is, why? People have spent some of their pandemic savings, for sure. Some of the programs that were designed to stabilize the economy during COVID - SNAP benefits, in the US, it is Supplemental Nutrition Assistance Program, Child Tax Credit, and the pause on student loan repayments. I mean, a lot of those things have rolled off.
And one of the dynamics you do see is that services spending is relatively strong. And I think one of the reasons for that is that some of the lower-income consumers are more stretched because food is a bigger portion of their overall monthly budget. And then the other thing is they've probably spent through -- the evidence suggests -- a higher percentage of their savings from COVID.
So the wealthier cohort is a little bit more flush, and they're spending more and more, relatively, on services, experiences, travel, going out to eat. And we can talk about, if you want, how that affects the Christmas spending forecast maybe specifically.
Greg Bonnell: Yeah, because you do see that shift between spending on what you need and what you want. Before we go into that, I did want to ask you about -- I found it interesting, that during this retail season, a few retailers were talking about the fact that when they hold a sale, the demand is big, and the stuff flies off the shelves.
But outside of the sale periods and the big discounts, investors are -- sorry-- consumers are pulling back. From an investment point of view, that seems, to me, to speak of tightening margins or, perhaps, no profit margin at all. Is that a bit of an overhang for them?
Chris Graja: Well, it's certainly a very good thesis. One of the questions is whether they have inventories well enough aligned. So, I mean, one of the things you allude to is appointment shopping.
And over the last year, we've seen that shopping was weak. It's strong, like, Mother's Day, Father's Day, Back to School, Thanksgiving, Halloween, Christmas, typically. But then, in those lulls, it becomes challenging.
So, I mean, one of the things I have my eye on very closely this holiday season is, I mean, this is getting wonky and kind of technical - but Thanksgiving was early this year, so we have a longer period between Thanksgiving and Christmas. And shopping will pick up in the last few days before Christmas. There's no doubt about that.
But you kind of worry, to your point, about the weeks between the Cyber Monday promotions and when people are like, oh, no, Christmas is two days away. I better get what I need. If inventories are elevated during those dull weeks - and we saw it a little bit last year, some of the retailers may get a little bit nervous and mark things down.
So, yeah, I think it's a balance of inventories coming into the season, how effectively they did sell through during the period in October where they did have a lot of sales, how they did through Black Friday - and it seems like it was an OK, pretty decent Thanksgiving - and then how they're feeling about their inventories leading up to the holidays and if they feel like they need to lower prices in order to clear things out.
But some of the surveys agree with your thought that people are looking for sales and are looking for discounts after the years when there were product shortages, and people were just like, I want to get my child this toy. I'm just going to pay full price to make sure I get it.
Greg Bonnell: I want to ask you -- I want to take this discussion back to the fact of the shifting consumer habits because I know that after I do my panic shopping right before Christmas - that happens to me every year - when the new year comes, you've got things. You still want to get out of the house, though, and experience. Could that be a tough time for retailers as we head into the new year, if people will put their money more into restaurants, more into experiences, and they've done their holiday shopping?
Chris Graja: I mean, I think one of the challenges is that, if the economy remains tight, particularly for people at lower income levels, you've spent your money, and you've splurged to get that extra toy or that extra game system or the extra fun thing for the holidays. And then January rolls around, and the credit card bills come out.
And, quite honestly, one of the challenges is that credit cards are at record-high rates. And you're saying, I really need to be careful here for a couple of months. And then you're right. I mean, for the higher-income shopper, I mean, one of the things you'll see right after Christmas is some of the higher-end retailers and department stores go with their resort collection.
I mean, that's not for everybody. But, yeah, as you say, there's a percentage of the population that as Christmas ends, they start thinking of their clothes for flying south or going to California or going to Spain or somewhere like that or taking a cruise.
So, yeah, there are a lot of dynamics. That's what makes it interesting. But I think the big one is, if people make it a merry Christmas, how does it look if their credit cards are strained come January, and we don't have as many of those appointment shopping events to get people to open their wallets.
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Will The Holiday Shopping Season Give A Boost To Retail Stocks?