00:00As retailers navigate inflation, higher fuel costs, supply chain pressures, and a split between value-seeking and premium spending, the
00:08latest earnings are offering a clearer picture of the global consumer.
00:12We're joined now to break it all down by Sharon Martis, head of consumer research at LSEG.
00:17Thank you so much for being here. We really appreciate it, Sharon.
00:20Thank you for having me, Justine.
00:22Yeah, of course. I mean, there's so much to get to here. There's so much going on for consumers these
00:27days.
00:27What do you think are the biggest takeaways from the latest second quarter earnings from retail giants like Walmart, Target,
00:34TJX?
00:34And also, what do they tell us about the health of the consumer right now?
00:38Well, I think the biggest takeaway is that value is no longer just a promotional tool. It's a competitive advantage.
00:46Consumers are still opening up their wallets, but retailers really have to earn every single dollar.
00:52Going into the quarter, we're looking at about an earnings growth rate of 67% and a revenue growth of
00:597.7, which is much stronger than the long-term average.
01:03So what we're seeing is, yes, consumers are shopping, but they're being very selective and value-conscious, and convenience is
01:11key.
01:12We saw that especially with this week's numbers.
01:14So if you, for example, look at Walmart, Home Depot, Lowe's, e-commerce, we're all double-digit growth, and this
01:23is because consumers are all about instant gratification.
01:25They want everything delivered right then and there at their households, and even Target saw a 25% spike in
01:33same-day delivery.
01:34So that's why we're seeing that more retailers are investing in agility and speed for their strong omni-channel, and
01:41consumers are responding to it.
01:43We're seeing that if the convenience is there, consumers are gravitating towards the stores.
01:48They're gravitating towards value.
01:50They're still shopping, but they're being very selective.
01:53Yeah, it really seems like that selectivity and, as you're saying there, that convenience is just so important now with
01:59when people are actually going to open up their wallets or not.
02:02We've also been hearing a lot about this K-shaped consumer.
02:05Some shoppers still spending on premium products, while others are really hunting for bargains.
02:09So how wide is that divide right now?
02:12Value is critical across all of the cohorts, income cohorts.
02:17So we're seeing that even the high-end consumer and the middle-class consumer, they are trading down, and they're
02:24gravitating towards Walmart for groceries especially.
02:28And then while buying groceries, they're also opening up their wallets for those discretionary items.
02:33We saw the same thing at Target this week.
02:36So across the various groups, we're seeing that value is an important proposition, not just only for the low-end
02:44consumer.
02:45So it's, as we mentioned, value is critical for a retailer to stay competitive now.
02:51Yeah, it seems like the value, again, is so important there.
02:54But also so many other factors outside of what's happening with the consumer themselves, so many other factors really influencing
03:01what's going on here.
03:02We have inflation, higher fuel costs, supply chain pressures.
03:05How are all of those factors really showing up in retailers' bottom lines?
03:09And how much of those costs are actually being passed on to consumers?
03:13Yeah, so Walmart gave us a big warning last quarter.
03:16They're telling us, you know, that they are going to be fighting with higher fuel prices, energy costs for the
03:23remainder of this year.
03:24And so did Home Depot.
03:26What is interesting is that they are taking back that tariff refund and literally putting it back into everyday low
03:34prices.
03:34Walmart is, and even Home Depot told us the same thing, that we shouldn't be looking at the tariff refund
03:40as an earnings windfall,
03:42but instead of a cost offset system to help them deal with the higher energy and fuel costs that they're
03:50going to be dealing with this year.
03:51I think that Walmart is in the best position out of everybody because they are seeing that the low-end
03:58consumer is being pressured by the inflationary costs that are happening.
04:04And because of this, they're actually becoming more attractive, Walmart is, because that is the one place where you can
04:10go and still get everyday low prices.
04:12They're not increasing prices.
04:13In fact, they've lowered prices for over 10,000 products.
04:17We also saw that that helped Target, actually.
04:19That's what helped Target during this earnings season.
04:22For the back-to-school season, they lowered 95% of their merchandise.
04:28And this is key because in a collaboration with Centric Market Intelligence,
04:33LSAC discovered that backpacks, footwear, they've all gone up significantly higher in prices compared to a year ago.
04:40So when you see that a retailer like Target is able to lower their prices in a time like this,
04:46that's why you see the strong numbers that we saw of them this week.
04:49Yeah, that's so fascinating, especially as you're right, as we head back into this back-to-school kind of shopping
04:54period here,
04:55people are looking especially for more value because they have more things that they have to buy.
04:59Looking at the kind of home improvement spending now, Home Depot and Lowe's are also dealing with a slower housing
05:05market.
05:06How much of a headwind is that?
05:07Because you've also said that they actually were doing pretty well right now.
05:10So talk to us a little bit about that sector.
05:13Yes, so Homes and Lowe's are showing us where the consumer is actually pulling back.
05:20When it comes to those big ticket items, the big DIY projects, that's particularly tied to the housing market.
05:28That's where the consumer is thinking twice before opening up their wallet.
05:31So it tells you how sensitive they still are to the inflationary prices.
05:36Still, having said that, the consumer still has to fix things around the house.
05:42And you can still order a screwdriver at Home Depot and have it delivered to your house within three hours.
05:48So we saw that Home Depot especially was going to invest a lot of that refund also into technology.
05:56They're working very hard on speed, agility.
05:59And so even though the consumer is not ready to open up their wallets for, you know, big ticket item
06:05projects,
06:05they are still opening up their wallets for that convenience factor.
06:09And that's why Home Depot and Lowe's didn't do even worse than they did.
06:14Yeah, it really seems like that convenience factor and people being able to get what they need as quickly as
06:19they need it is really just so key right now.
06:22Looking abroad a bit, what can the latest results from Chinese e-commerce giants like Alibaba tell us about the
06:27global consumer
06:28and the changing competitive landscape really around the world?
06:31Yes, it's showing us that it's not just an American-focused issue, the inflation.
06:37It's actually happening around the globe and more and more consumers around the world are gravitating towards that value.
06:44They're also feeling the pinch in Europe and Latin America especially.
06:47So as a result, value has become a competitive tool.
06:55It's no longer, it's a competitive advantage.
06:58It's no longer a promotional tool, sorry.
07:00And so, like, what we're seeing also is that the amount of merchandise on sale in the United States
07:06has actually gone up to its highest level in six years.
07:10LSEC discovered a collaboration with Centric Market Intelligence.
07:14And this is because consumers, retailers are being more strategic and disciplined about how they're attracting the consumer.
07:21So there are, the amount of merchandise has increased.
07:25They've ramped up the amount that they're offering.
07:28However, the percentage offered on these products hasn't really moved a lot.
07:33So that tells you that retailers are becoming just more disciplined and strategic to protect those gross margins
07:38while giving the illusion that they're having a promotion.
07:42Yeah, that's what I was going to say because the strategy there seems a little bit interesting
07:45that they would kind of do more things on sale but maybe four or less.
07:50And I wonder how much of that also has to do with the global supply chains
07:53and how that's affecting both retailers and consumers.
07:56Do you think that companies are just trying to find ways to reduce those cost pressures
08:00when you look at kind of the global scale of things?
08:03Absolutely, they are.
08:04And so what we're seeing is that Back to School is giving us also a little glimpse of the holiday
08:09season.
08:10This is not their first rodeo dealing with supply chain issues.
08:13Obviously, the likes of Walmart and Home Depot are better positioned than a small business.
08:18But still, having said that, the early signs of Back to School is showing us that they are well positioned
08:25in terms of inventory ordering the amounts so that they're not having the issues that they had back in the
08:30pandemic.
08:31So they are watching very closely what the demand is.
08:35They know that the consumer is still opening up their wallets.
08:38And this is directly tied to the wages and their salaries, meaning that the consumer,
08:45the one economic indicator that the consumer understands very well is the employment.
08:49And they will continue to spend as long as they are employed.
08:52If they start to feel that this number is going to, if their job is in jeopardy,
08:57then that's when they're going to put their hands in their pockets and hold back on spending.
09:00Yeah, that makes a lot of sense.
09:02We have so much to keep our eye on here as we head into the rest of the summer.
09:05And as you mentioned, even start thinking about the holiday season just around the corner there.
09:09So, Sharon Martis, thank you so much for being here today, Head of Consumer Research at LSAC.
09:14We really appreciate you breaking it all down for us.
09:16Thank you so much for having me.
