Top 3 Things No One Is Talking About In Retail – Telsey Advisory Group
Guests: Dana Telsey and Joe Feldman
Topics: holiday spending, retail trends, consumerism
Chris Ressa 0:00
This is Retail Retold, the story of how that store ended up in your neighborhood. I’m your host, Chris Ressa, and I invite you to join my conversation with some of the retail industry’s biggest influencers. This podcast is brought to you by DLC Management.
Welcome to Retail Retold everyone. Today I’m joined by Dana Telsey and Joe Feldman. Dana is the Chief Executive Officer and Chief Research Officer at the Telsey Group. And Joe is the Senior Managing Director. Welcome to the show, Dana and Joe.
Dana Telsey 0:40
Thank you. Thank you for having us.
Joe Feldman 0:41
Thanks for having us.
So why don’t you tell us a little bit about the Telsey Advisory Group and what you do before we get kicked off, Dana?
Thank you. So Telsey advisory group started nearly 17 years ago, myself, Joe Feldman, and our other partner Thompson founded the company, we came out of Bear Stearns, and there’s three aspects to our business. We’re all about consumer all the time, we have a research arm that follows public companies, private companies, in hard lines, and soft lines, from apparel department stores, grocery, consumer electronics, off price and home.
And overarching all of that is new economy with any way that consumer converts and spends, we want to be there. Second, we have a banking consulting arm, where we’ve been involved in numerous transactions in the consumer space of companies that are going public, we consult to private companies, public companies of all types, from retail real estate companies, it could be to steel companies, media companies, where that’s omni-channel competitive analysis, branding.
We basically share insights into how we see consumer companies being able to grow. And third leg of the business is asset management. We have the Chelsea consumer fund, a long-short consumer hedge fund that’s been around for seven years, got its first allocation from the state pension fund last year, and it’s been beating the averages. That’s what we do. That’s who we are, you know, what do I miss?
Well, I think just as a boutique investment bank that’s really focused on the consumer. And if you drill down even really more on retail, I do believe that we’re at the crossroads of where a lot of retail is happening, meaning, you know, we’re dealing with the company management’s.
We’re dealing with real estate developers, we’re dealing with executive recruiters and the labor side of things. So we really kind of can synthesize the trends in retail, I think a lot quicker and faster than most others out there.
Yeah, you guys are great. You’re in the, you have tentacles in so many different parts that touch retail that, you know, you can synthesize that information, probably better than most. So we’re lucky to have you here today. Thank you so much. High level, what’s on your mind today on retail? What’s going on as we head into this holiday season? Or, yeah, I don’t know. Are we already in holiday season shopping? How does it work anymore?
Chris, what a week to choose from? Because yes, we’ve been hearing everything this week. And exactly to your point, that holiday season really gets started in October, when Amazon began their second Prime Day. And then you had whether it’s Walmart, Target, Old Navy, all joined in the party. What are we thinking about today, inventory levels are cleaner than we expected.
Promotions are high and only get getting higher. And what a difference a year makes. Because last year at this time, you didn’t have enough goods and they’re all selling it for full price. Now we have too much and there’s markdowns going on. And the consumers don’t have the dollar and spending power this year that they had last year. So it’s making for interesting times for the retailers. What do you think?
Yeah, I think the other big thing that we’ve learned in the past week or two is the timing of the holiday season. You know, while it did start very early, actually earlier than last year, it was beginning of October when things for holiday was really starting to kick off with Amazon’s Prime Day and Target ran their deal days promotion and Best Buy and some others. And yet sales have slowed a lot in October and so far into November.
So now the question that we’re facing is, is that the retailer, or the consumer that’s being slower? Or is it the just waiting for better deals come holiday season, we’re not quite sure where we’re at. It feels like holidays are still going to come, gifts will still be bought. But even with all the promoting and all the discounting that’s happening, people are still kind of waiting to buy closer to need right now, which is kind of an interesting dynamic that we didn’t really expect to play out. Yeah.
Someone recently asked me is, you know, Black Friday, Cyber Monday, Small Business Saturday, like are they obsolete and irrelevant anymore? And my take of it is in normal times takeaway 2021 which, by most accounts wasn’t a normal retailing year. I think there’s an emotional trigger. That happens the day after Thanksgiving. Even in my family, that’s the day we go get our Christmas tree. And it starts the season, people are decorating.
I think that emotional trigger will play a part into dollar spent. Do we have this catch up? I don’t know. But it the emotional trigger plays a part. I think you hit a good point, you know, with inflation, maybe people are buying more to need right now. Were last year they could they could have prepared and bought more things earlier. But I think that Black Friday in that week is going to be a really interesting time. Because I do think it’s an emotional trigger to start, like thinking of holiday.
I agree, Chris, I think the other thing is one of the things that’s different this year than whatever the past two years was, we didn’t have anything where people could gather and celebrate together. I think one of the things we’re seeing is that store sales are improving digital sales are moderating.
And I think that ability to capture the social aspect of it, people are looking forward to going to going out to see things it’s almost like an emotional trigger look at right after right after Labor Day. It’s like back to school, it’s the new year, people want events to commemorate memories, experiences, create memories, and we need to build our memory bank again.
You know, and if I could add on to that some of the data providers that we do talk to are talking about Black Friday being a very big day this year. And that whole weekend really being much more of a kickoff than it has been in the past couple of years. So to your point, Chris, I think that could very well be the case. And we’re hoping it will be the case. Next Next. Next week. Yeah.
Okay. So that’s a bit of a high level, what’s going on in retail, this segment is going to be the three things that people aren’t talking about enough in retail. So let’s jump right in. What’s one thing people aren’t talking about enough that this should be
the crime that’s happening in the stores? I mean, we began to hear a little bit about it. I’ve been hearing about it for almost nine months now. It’s accelerating, it costs money, you have to have customers and employees feel safe, where they’re working and with where they’re spending their dollars. And it’s only becoming more aggravated in every category of retail. Yeah. Joe?
Yeah, another thing I would add is the supply chain is actually better than people think. Meaning we all keep hearing that the supply chain has improved, and it’s gotten better. And that’s true. I think the flow of inventory is much closer to pre pandemic levels than some of the companies want to let on based off of the data that we see that’s out there. And, you know, come ships coming into the ports and the flow of the product.
And, you know, there’s this expectation that, well, it takes time to cycle through the current inventory to get to bring in new inventory at lower freight rates to then have a lower, you know, better profitability down the road, which is expected to happen in the second half of next year where we’ll finally cycle through all this high level of inventory. And I’m just worried, what if that doesn’t happen?
What if freight rates either are or just staying where they are, and so you don’t really ever get back now year over year, it will look a little bit better. But I do think that the flow of inventory is better than people want to admit right now. And that that that benefit you get from the cycling of the inventory may not be quite as strong as what I think a lot of investors may be hoping right now on Wall Street.
Thank you, Joseph. Deena, going back to the crime for a second. I think for a long time from the investor and even the analysts on Wall Street, they they have a reaction to earnings reports whether it’s giving a reaction when margins expand or compressed, they have a reaction when inventories are high and low, they have a reaction when you know, sales go through the roof.
This crime thing is newer, especially at some of the numbers, we’re seeing how investors reacting to some of the reports around the crime.
All of a sudden, they’re beginning to ask more about it. And really it was when target came out with that number this week. But all of a sudden people looking at it. They want to know how much you’re baking in for going forward. What are your preventative measures are you taking and how long as there’s been going on? They’re first coming were aware of it and it was this week that it became top of mind for them. Wow.
Which is strange to me, by the way because, you know I think it was about three years ago, there was a quarter where Home Depot had missed on their gross margin, because their shrinkage number was so much higher because of organized crime and theft. And that same quarter, BestBuy came out and said the same thing.
And so I feel like this has been kind of going on, and yet the investor community has been ignoring it for some time. And to your point, Dana, it does feel like people are much more engaged now, when they hear heard that big number from from Target, that it’s 400 million year to date of theft that they’ve had to deal with. So
we have the crime, we have what if the supply chain doesn’t open, I’m going to throw an app and I’m going to put it put it put to you guys that I’m thinking about, which is, I think that at some point, the cost of a good online versus in the store is going to widen significantly. And the cost of of building a store is going to be significantly less, because it is so much more costly, that losing the money, the losing money online, I think eventually, it’s going to go back to the consumer.
And you’re going to have this chasm of what I recently been talking about is like first class and coach today, if you want between, you know, coaches about a person that’s about two to 5x, more than then a coach ticket, and you want to get a coffee cup of coffee delivered to your house today. It’s about two to five times more than buying it in the store.
I think that’s going to why I don’t know if it’s five years, 10 years, you know, I don’t know what automation plays into. But it just feels like the price can’t be the same forever or less online. What do you think of that?
I think that makes a lot of sense. I think that makes a lot of sense that we’re like every retailer out there is trying to push the consumer to get to the store. And especially for digital orders. They’re trying to push Bhopal or curbside or some way that you can at least get the customer to come pick up the good because of the cost to ship. And I think you’re absolutely right that this issue is only going to worsen as it gets more and more expensive to continue to ship.
We were just speaking to a last mile consultant that we speak to that helps retailers manage their last mile costs. And I mean, if you hear the rates of increase, it’s pretty steadily 8% 10%. It just goes up and up and surcharges. And it’s really a lot of pressure for the retailers to
be shipped Do you think
I think take a look at why all of a sudden the number of store closures or closures that some of the biggest national chains were expecting. They’ve all reduced that number of closures and the reason why you win by being closer to the consumer. So whether it’s the Macy’s of the world or others, none of them are closing as many stores as they would have thought because the functionality of the store is playing many more roles today.
And it is much cheaper for them to have the customer come in the store and pick up the item and the attachment sale that comes with it. Rather than shipping for just from a distribution center. I think what the pandemic showed, is the store is where it’s at. And that’s why you’re seeing digital moderate to because consumers want that experience. It’s not either or anymore. It’s both. But the ability to operate and be able to deliver margins, you need that physical store to be closer to the customer. Well,
and we’re we’ve seen it actually with a lot of the digitally native brands have really struggled this past year, as consumers started to use the store a lot more often. And they didn’t have as much of a physical presence to leverage.
And almost every one of these digital native brands that we speak to are working aggressively to open stores, because they need that physical footprint to capture the customer. It’s much cheaper to market in to get people to come and buy goods at the store or pick them up at the store to your point.
Okay, and so that was my my curveball in there. Just I appreciate you guys playing the game. And that’s something on my mind. I’m like why is anyone talking about this? What is what is the third one data and Joe? What are people not talking about that we should be talking about?
I mean, some of it is the consumer slowdown could continue through the first half of 2023 with the pickup in the back half. And you see a bifurcation between sales and margins, because the tailwinds of anniversary and hopefully some of those supply chain expenses and as inventory levels get cleaner. It can help mask what could be some of the continued aggravation and sales lately.
Got it. So what could be some of those things like if the slow So MC 23, what could what do we see that could be that could pick it back up?
I think overall, it’s all about the product innovation that’s driving demand. We’ve, whether it’s, I mean, you look at new products, you look at what HK has done, you look at, for example, what Decker’s has done with us, innovation rules the day, and the personalization from data that companies are getting, in order to cure a product. They can be more successful than in the past.
Yeah, cuz even the companies that have been talking about a slowdown in their discretionary sales, it’s already started, have talked about innovation, though even the categories of the items that have some innovation in them are actually still selling. So that’s an encouraging thing.
But I think Dana is absolutely right, that this, this slowdown we’re talking, this is, it’s never one month, it’s never one quarter, usually lasts longer, and it’s likely to carry into next year, especially with the consumers so focused on trying to stretch their dollars, and they’re buying consumables at a much higher rate at this point to just get food on the table.
We’re going up and now you guys are sparking a lot of questions for me, I am curious. Are, do you expect some cool product innovations to continue and some new products out? Are you, are you hearing about some good stuff that’s coming in like 2023? And or beyond?
Yes, yeah. Different, different things, whether it’s coming to luxury area, whether it’s coming in apparel, I’m hearing about different, different things out there. And I’m hearing about just the demand that can be driven. And you know, who’s really the ambassador for all of us, the customer, social media has made product trends go viral, much quicker than they ever have in the past. And the acceptance from consumers because it’s thought of as real, is more so than in the past.
That was great. Thank you guys. Last thing. How are the holidays going to be this year? I, however you want to take that, whether it’s compared to 21 or what? Compared to last quarter, however you want to take it, whether it’s compared to 93 years trailing all these things I’ve heard your take. How are holiday sales going to be this year.
I think overall holiday sales compared to that, compared to last year, whichever year I mean, the increases that are shown to be out there, there are increases. But if you add inflation, that our holiday sales really flat to down. And the surprise would be if there is better demand. But overall, when you add inflation, it’s going to be flat to down the level of demand and excitement for the holidays. The surprise could be it’s greater than expected that we kick off with a Black Friday weekend.
That’s, wow. Yeah. And Joe?
Yeah, I mean, look, our official holiday forecast is around 4-5%. And to Dana’s point, when you back out the inflation, you’re likely to be flat to down a little bit. And I think the data is absolutely right, you know, with Black Friday, if we can have a good start to that weekend, and a really strong weekend.
Now it gives us a lot more confidence in those numbers. And is there a comparison? You know, last year, I think we were up high single digits in terms of growth the year before that had some growth. So like, you know, this year is looking to be less than the past couple of years in terms of the growth rates that we’re expecting. But you know, we are thinking there still will be your growth.
Well, Dana, Joe, thank you so much for coming on today. You were fantastic. And let’s stay in touch his holiday sales start to come through.
Awesome. Thank you for having us. Chris. Look forward to seeing you during the holidays and have a great Thanksgiving.
Thank you, Happy Holidays!
You too. Thank you for listening to retail retold. If you want to share a story about a retail real estate deal that you were a part of on our show. Please reach out to us at retail retold at DLC mgmt.com This show highlights the stories behind the deals from all perspectives. So it doesn’t matter if you are a retailer, broker, entrepreneur, architect or an attorney. Also, don’t forget to subscribe to retail retold so you don’t miss out on next Thursday’s episode.