Shoppers Demand Catering From Retailers: Analyst

Simeon Hyman and Hitha Herzog talk about profits from big stores, like Walmart and Target. They want to know what this says about people who shop in the U.S.

Retail earnings had mixed results this season. Walmart had a good grocery sales growth due to cautious spending, and a huge 26% increase in ecommerce sales. However, Target's online sales didn't do as well with sales falling for the second quarter. What does this mean for the US consumer?

Simeon Hyman and Hitha Herzog are on the show. They work in investment and research. They'll talk about the retail sector. It's been a busy earnings season. In one word, what does Simeon think of the retail earnings?

Simeon Hyman says it's not omnichannel yet. ProShares has an online retail index and a brick-and-mortar index. They split them.

Half of the retailers have reported their earnings. The online index is up by 76%, while the brick-and-mortar index is down by 1%. Walmart has not yet reached the point where half of their stores are dedicated to last-mile fulfillment with drones.

Target's online sales fell recently, which is intriguing. Experts like Hitha are paying attention to the trend. It's noteworthy that customers aren't investing in electronics or fashion either. At the moment, it seems like buying habits are divided.

When you're on a budget and go to a store, you'll focus on buying the essentials like groceries. You wouldn't splurge on a big purchase. If you want something new or need a home remodel, you would opt for something smaller.

People are spending less and being selective with their purchases. The pandemic caused a change in spending habits, with more people shopping online from their sofas. If the phone is too far away, purchases won't happen.

Julie Hyman wants to know how retailers are feeling during these times. Walmart is doing better than Target. Even Target in their bad state is still careful with their words. Are retailers scared right now?

HITHA HERZOG: The big stores seem more confident for the next few months. Walmart and Target raised their expectations for the coming year.

Retailers focus on grocery and essential items. They double down on it. A chief merchandising officer from Walmart talked about it at "Shoptalk." Walmart narrows down on merchandising for each store location.

If you sell items that are made for a certain location, more people come to your store and buy them.

BRAD SMITH: Can you answer quickly? Hitha, what do you think about consumers and a possible recession in Q3, 2023?

Hitha Herzog says people want to shop, but only if retailers cater to them.

I read about something called the Unified Benchmark from Manhattan Associates. They said that retailers who focus on things like fast delivery and good return policies will do well. These retailers need to be very organized in their logistics.

Shoppers are picky these days. They prefer a whole experience while spending money. They won't behave like before the pandemic. They will be cautious about shopping.

People are still scared. Inflation is still present, but decreasing. They remain anxious.

BRAD SMITH: I've done it before, taking things home to see how they look in my mirror and then returning them. Simeon, have you ever done that too?

Simeon Hyman thinks retailers and consumers are showing mixed results with weak behavior. This reflects what's happening in the economy. The debate between a soft landing and stagflation light doesn't matter much.

Our GDP growth in Q1 was only 1%. If it goes down to -0.5 or even minus one, is it a big deal? Maybe not. If inflation is 2.75 or drops to 2%, we could be in a soft landing or mild recession. Consumers are behaving similarly.

Julie Hyman finds it interesting to look at the big macro picture and how the current situation affects the economy. She is also curious to know which retail stocks could be a good investment choice for investors.

Your idea is intriguing as we've been discussing how consumers are picky about their purchases. Your point is that they not only choose what to buy but also where to buy it due to the intense pressure retailers face to perform flawlessly. Bed Bath & Beyond serves as an example of what happens when a retailer doesn't meet expectations.

Julie Hyman is wondering how specialty retailers like The Gap and Macy's will perform when they report.

Hitha Herzog commented that it's interesting because department stores are closing down in malls. Macy's has looked at their metrics and saw what their customers were doing, how they were trying to shop, and what they wanted.

Does Macy's flagship store need help? Yes. Is it perfect? No.

They want to merge the omnichannel approach, but the word sounds unpleasant.

It's time for a new word. The old one has been here for 12 years. People want more. They want to feel fulfilled.

I keep mentioning returns because it's important. Shoppers like buying online, trying items, and returning them. That's normal. I read that about a third of kids under 10 never shopped in stores. This makes sense.

I have twin four and a half-year-olds, and Julie knows that. They don't know the joy of going to a store and being surprised and delighted. Instead, they get excited when Amazon packages arrive at our door. Retailers need to recognize this new kind of consumer and focus on delivering surprise and delight through the mail. This is where we will see real progress, especially in the future.

Julie Hyman thinks the point is good. She remembers being taken to the mall by her parents for many hours.

Julie Hyman says that you can buy things online instead of going to a store. However, you don't get the surprise and happiness when you try it on in front of a mirror and sometimes the item doesn't fit. This means you have to send it back.

Hitha Herzog thinks it's a bummer.

Julie Hyman found it fascinating how the upcoming generation will shop with ease online. They'll become the digital natives for shopping.

Hitha Herzog's daughters only went to the mall once. Hitha grew up in the mall and loves it. She thinks her daughters don't know what it's like and don't find it fulfilling.

Julie thinks it's interesting. Hitha came, thanks.

Julie Hyman knows Hitha, who is now the Chief Research Officer at H Squared Research.