Gerald Storch, Storch Advisors CEO and former Toys 'R' Us CEO, joined Yahoo Finance Live to discuss the latest earnings reports out of the retail sector and his outlook for holiday retail sales.
When you look at what we're seeing, across the earnings, today, Home Depot was up, Kohl's didn't do so well, but then Walmart did really well. What are the retailers who are making it through the pandemic, and even before, perhaps-- doing right, whereas, say, a Kohl's might not be doing right.
So, of course, Amazon is winning big. They didn't report today, but they had a huge quarter that they reported there-- a different little different timing. The report before it was fantastic numbers. They continue to do great. They're going to continue to hit the cover off the ball.
Walmart did great. Walmart is in the right place at the right time. They're the leading grocer in the country, at a time where people want groceries. They stand for value, at a time where maybe there's a little bit of discomfort about the economic state of the country. Meanwhile, they offer everything, they're open all the time, they've got a great website, they've been growing their internet. They grew that their internet sales by 79%, during the quarter. That's the kind of numbers that they're posting. So they're doing everything right, and in the right place.
Home Depot, same thing. They had a 26% same-store sales increase in the US. That is one of the biggest numbers I've ever heard of in my entire retail career of 30 years-- an astronomical number. Why? Because we're not buying apparel anymore. We're doing things for our home-- that's where we're focused. We're fixing our-- Whatever it is, Home Depot is best in class, best to [INAUDIBLE], by far.
Lowe's is catching up. We'll see good-- I promise you, I'll tell you right now --we're going to see good numbers from Lowes, tomorrow, and good numbers from Target, tomorrow, for the absolute same reasons. They're kind of the junior peers of Walmart and Home Depot. So those are coming. Home Depot have been doing great.
Kohl's-- they're trying to sell apparel, in the middle of a recession, a pandemic shut-down. Nobody's going out. They're wearing the same thing. You know, only a few of us are dressing up, right now. Most of us are wearing the same thing, one day, wash it, wear it, two days later. You know, we don't even need new clothes. Even if we had them, who's going to look? Who's going to care?
And apparel has been down-treading for a long time, even before that-- for like 30 years, across the losing market share. Meanwhile, on top of all of that, poor Kohl's is a department store, and department stores are dying-- we all know that. So we saw apparel sales down 12%, year over year, we saw department stores down almost 12%, year over year, and when we look at those October numbers, these are dying segments.
Brilliant CEO at Kohl's-- doesn't matter. You know, what's the old saying? You know, you have a great CEO and a bad business, the bad business is going to win, every single time. On top of all of it, Kohl's sells very low-cost apparel-- very low margin. How do you sell that on the internet and make any money? The answer is you don't. You know?
So they try to put packages of clothes together and sell them to you. There's no margin pool to pay for the free shipping, and so, their internet, which would be a solution in many other circumstances, like for a luxury retailer, is simply not a solution for them.
EMILY MCCORMICK: Jerry, I want to go back to what you were saying earlier, just about some of the strength that we saw from Home Depot and Walmart. They're well positioned, right now, of course, for what we're seeing play out over the last several months. But what about this current quarter? Because I think, maybe, the strong numbers, last quarter, were expected. But what about this quarter?
Because we still don't have stimulus from Washington, Americans are getting more and more hesitant to spend-- we can see that in the retail numbers, the retail sales growth slowing, just in terms of pace --so what does that mean, for these companies? Are, I mean, like, Walmart and Home Depot basically recession proof to that, at this point?
JERRY STORCH: No, we're not in a recession, right now-- not a consumer recession. And I don't know what's going to happen in the next two months. I'm more optimistic than most people, I will tell you that, right now. Because I think consumers have saved a lot of money, during the pandemic.
They're not spending on dining out-- that's one of the numbers that was down, quite sharply, in the numbers we saw today --they're not spending on travel-- that's not on retail sales, so you don't see it, but they're not spending on travel. So they're not spending on a lot of other things. They've got a lot of money.
Certainly, there are unemployed people that don't have much money-- people talk about the "K" shape, and all of that. I won't get into what shape the recovery is, except to say that, by and large, there's a big pool of consumer dollars still out there. And when someone says, which everyone is saying, and you said-- that's OK --you know, that sales are slowing down, I have to take some exception to that. I just don't see that, looking backwards.
I don't know about going forward. You know, again, anything can happen, but-- and, again, I'm optimistic --but if you look at last October compared to this October, last October-- no pandemic, all the red, people think the economy is on fire. Sales were up 8.5% retail trade. You know, that part of the retail was up 8.5%, this October versus last, and last October was the middle of a pandemic.
And, if you toss gas and cars in there-- and gasoline is down 14%, because people aren't traveling, because gas prices are down. But take that, toss it back in there --you're still up 5.7%, versus last October, so sales have grown. So when he's like, "Oh, it's slowing down-- the pace --versus last month," that's nonsense. So it was up three tenths instead of five tenths. The error term in the report is three tenths. They could just as soon revise that, next month, up two tenths or three tenths. You wouldn't have a day. That means nothing.
ADAM SHAPIRO: Jerry, even with the acceleration of the shift to e-commerce, we were saying, during the commercial break, that a great many of us miss the days when we were kids of going with mom or dad to a department store, and running to the toy store. There's still going to be brick and mortar, after the pandemic, and after the migration to e-commerce, but what is brick and mortar going to have to do to compete? Because there's going to come a point-- isn't there? --when the Amazons and digital is just going to surpass it.
JERRY STORCH: Well, as I've said for a long time, now, there's probably three to five times as much retail square footage in the US as we need. I mean, I'm looking forward, I'm looking at the growth e-commerce-- what's going to happen. It's astronomical, what's going to have to go bankrupt. And it's going to keep happening.
As you know, it's a record pace, this year, people think it may be all over. No way. Huge number, next year. The latest one we heard about was francesca's, yesterday, likely to go bankrupt. It's going to be one after-- mostly apparel, mostly accessories, for all the reasons previously enumerated. But, you know, massive amounts of bankruptcies.
So what's happening is a massive consolidation. When I said that, once, on Bloomberg or something, he goes, "Oh, Jerry says people are going to buy each other." No, that's not what I'm talking about. This consolidation, because the big guys are going to get bigger, and bigger, and bigger, and eat up all the share, and little guys are going totally out of business.
You know, people brag-- they think it's a great strategy to close stores. "We're closing stores, were paring back." All you do, when you close the store, is you shift the sales to the nearest store. You don't shift it to your own internet, and you don't shift it to some store that's too far away, so all you're doing is shrinking. So, basically, there's going to be massive store closures, huge bankruptcies in the future.
The winners are going to win huge. The winners are going to be the ones that offer consumers value. They're going to offer consumers an omnichannel or all-channel experience, pile on pick-up in the store, great internet, all of these have a lot of hard lines, which is where all the growth is-- electronics, home goods, things like that --and still have great apparel. You know, Target has great apparel, Walmart is working hard to make them better.
You know, don't think for a second that anybody needs a department store, in this world. They don't have department stores in most countries on the planet that occupy any major market share. We just got used to that in the US, you know, over time. They disappeared, a long time ago in most places.
And so that's what's going to happen. You're going to have all the share in the hands of Walmart, Target, you know, Dollar General-- which, by the way, doesn't sell on the internet per se, you go there because it's cheap, right? --Tractor Supply, TJ Maxx, which is value. Verticals like Nike, Lululemon-- they're going to do great. Chanel, you know, in their verticals-- they're all going to do great. Winners and losers-- the winners are going to win big. At the end of the day, bricks and mortar will be smaller, and internet be bigger.
EMILY MCCORMICK: Jerry, what's the strategy, going into Black Friday? You're saying that the consumer looks pretty healthy, from what you looking at. Are we already seeing the best deals of the season, or are we going to continue to see some of these retailers offer better and better discounts?
JERRY STORCH: Oh, they're saving stuff for Black Friday, believe me. And, also, sometimes, you get near the end, and people get desperate if it's not going the way they want. So you've got plenty of good deals, ahead. Everyone tried to start early in October, with Prime days, and everyone piled onto that. And I think there's some evidence of that in that big 29% year over year increase in e-commerce you saw in October. That's a huge increase, 29%. Much more rapid than the previous pace-- about double what it had been, prior to the pandemic. So, a huge increase in October. I think we're going to see a lot of that going on, online, going forward.
The problem is you can't do the big crowds on Black Friday. I call it mask Friday, not Black Friday. You're going to have to socially distance, you're going to have to be really careful of who you let in the store. But, over the course of a holiday period, you're still going to have a lot of sales in stores, much higher shifting online.
They're all closing on Thursday, right? In the stores, where they used to open for the Black Friday sale on Thursdays-- they're all stopping that. But they're going to have their online sales, starting on Thursday, I promise you, and it's going to be a massive day. You're still going to see huge days on Thursday-- Thanksgiving Day --online, on Friday, online and in stores, on Cyber Monday.
And, I promise, you know-- try to go to a store, on the Saturday before Christmas, and you're going to find lots of people in the stores. Even though we're not going to all love it, we're going to have no choice. When you get desperate, you know, it looks a little safer.
ADAM SHAPIRO: All right. Jerry Storch, I was just thinking, when we were talking about Marshall Field's-- I don't know if I should thank you or get upset with you, because I once bought an olive green, double breasted suit, many years ago in Marshall Field's, and it remains in the closet, for life. Thank you so much, though, for joining us. Jerry Storch, the CEO of Storch Advisors. All the best to you.