🛍️ The State of American Consumer Spending in the Face of Inflation 🛍️
As inflation continues to hit American wallets, retailers’ earnings indicate that consumers are still shopping. With just over 20 minutes left on Wall Street, we take a look at how to navigate the big picture regarding consumer spending with the Yahoo Finance Playbook. Today, the consumer is front and center, and we explore how resilient shoppers are doing and what that means for retailers and beyond. Joining us for this discussion are Dana Telsey, Telsey Advisory Group Founder and CEO, and Michael Lasser, UBS US Hardline and Broadline and Food Retail Analyst.
👩💼 Setting the Stage: Where is the Consumer Right Now? 👨💼
When asked to set the stage about the current state of American consumer spending, Dana Telsey notes that there are both headwinds and tailwinds. Despite geopolitical uncertainty and lower tax refunds, consumers’ spending power is either stabilizing or improving due to a strong labor market, moderating inflation, and the potential for lower interest rates. Michael Lasser’s take is that the consumer is getting fatigued, and spending is episodic and volatile. While the labor market is stable, some excess savings that drove disproportionate growth in consumer spending over the years have now been worked off.
💰A Look at Target and Retail Trends💰
Michael Lasser covers Target, which is getting its footing back, as investors are largely responding positively to its most recent report. He believes that Target can retrace to historic margin levels within the 6% range and that the stock can move higher with the catalysts ahead. Other catalysts include the company’s presence at the UBS Consumer Conference next week, where it can reassure investors about maintaining its momentum, and the alternative data that looks better in April, May, and June. For Dana Telsey, innovation and value are essential in today’s retail environment. She cites Bath and Body Works, which has a big loyalty program and is introducing new categories, as an opportunity. Ralph Lauren is also an exciting prospect, with its increasing popularity, while off-price TJX reported significant traffic gains last year.
🛍️ Retail Theft: An Issue Becoming a Tailwind 🛍️
In terms of shrink or retail theft, Michael Lasser believes that the issue is moving from being a headwind for many retailers to a tailwind. The rise in shrink over the past few years has been a 120 basis point drag for Target, Dollar General, Dollar Tree, Ulta, and Five Below. However, as a lot of the inventory has been cleaned up, shrink is becoming less of an issue. Retailers that could benefit the most are Dollar General, Dollar Tree, and Burlington, which are reporting this week, and Ulta and Five Below.
🏪 A Look at Costco and Beyond 🏪
Looking at Costco, which is reporting this week, Michael Lasser notes that sales are already out, and the margin has been well managed with inflation having moderated. He is particularly interested in discretionary categories such as appliances and furniture, where Costco is experiencing an inflection that suggests it is ahead of the curve. Moreover, the outgoing CFO, Richard Gany, will be at the UBS Consumer Conference next week, where there will be a chance to discuss the opportunities for Costco moving forward.
👋 Hot Take: Consumers are Getting Fatigued 👋
Overall, the American consumer is still shopping in the face of inflation, but the fatigue is palpable, with spending becoming more episodic and volatile. Retailers will need innovation and value to thrive in this environment. Still, shrink or retail theft may no longer be a significant issue, and some retailers are well-positioned to benefit from this change. The future of retail looks uncertain against the economic backdrop, despite current positive reports.
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