Summary

Mark and Marni of the Retail Tracker focused their call on how strong consumer spending has been and should be sustained throughout 2021 as well as their outlook on specific names in retail. With shopping having fully adjusted for COVID in the US, this was an activity that consumers were enjoying after spending so much time at home. Stimulus checks and a higher savings rate have increased the amount of money floating around, that has been on the sidelines waiting to be spent. The first spending observed was on kids, as a way of trying to counter their huge losses during the pandemic in schooling. Kids and youth businesses saw the first bounce back. Marni envisions this trend to continue through the back-to-school and holiday periods, particularly with 90% of families with kids now receiving a child tax credit.

Inventory levels have been lower than historical rates, and there have been far fewer promotions and price markdowns. Retailers have committed to keeping inventories clean, prompting the customer to buy or miss an item. Marni noted there is more inventory online. What the customer has to buy, would be done online however what the customer wants to buy, will be done in store, with people enjoying being back in the shops. Children’s Place and Old Navy have commanded the space; however, Kohl’s has also stepped in with a new college collection. In home players such as Bed, Bath & Beyond are defending their turf whereas Target has improved its assortments and layered on conveniences like buy online, pick up in store.

One of the biggest changes seen has been older shoppers coming out, the very last set of customers to come out. Beneficiaries include Chico’s and Macy’s, with older shoppers out in record numbers and spending money they had saved during the pandemic. Buying is moving away from cosy and comfort into a post-COVID life of going to events. International tourism is still yet to return to the US, with Americans travelling internally on family trips.

Labour costs are up in retail, with shops offering a minimum wage higher than the national average. Inventories are still low and consumer demand is still high. Consumers are not yet at the point of pushing back pricing however this is coming, and retailers have slowly been increasing prices and promotions have also been coming down, with 25% off the new 40% off today. With the holiday seasons coming up, Marni predicts people will spend more on glamourous in-person gifting, with more luxury and strong brands having an advantage.

The call moved into discussing specific stock names, firstly Target, who have significantly improved their business and operations during COVID and should excel even more so following the back-to-school theme. American Eagle was reliant on denim for their business pre-COVID, however a change of leadership to Jen Foyle has been a massive undertaking for the company, with deliveries and their numbers improving. Ralph Lauren has cleaned up their distribution and removed points of distribution that were no longer working. Pre-existing conditions that their women’s business was a laggard and their home business had huge potential have both been worked on and improved. Their expansion online into ASOS, Selfridges, Ssense have been successful and tourism into the US will be a bonus. Under Armour was their least favourite name, with nothing new or exciting to show for themselves and an extremely competitive active fashion market, concerns lie in the back half of this year and in 2022.

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