Travel trends in Europe are 'encouraging' signs for U.S.: Expert

Mastercard Senior Adviser & Former Saks Chairman and CEO Steve Sadove joins Yahoo Finance’s Zack Guzman to discuss the latest retail trends to watch in Mastercard’s latest recovery insights report.

Video Transcript

ZACK GUZMAN: A new report from Mastercard is highlighting the shift here in spending, and no doubt a lot of it tied to the pandemic-- basically all of it tied to the pandemic, as everything we're discussing on the show has been. The big drop, though, in travel and entertainment spend seen recovering in Europe, as they have been able to get a handle on their own cases a little bit earlier here than the US. And we are seeing that recovery, not just in air travel, but also spend at gas stations showing what could happen here, potentially, as we move forward in our own recovery.

And here to chat that with us is Steve Sadove, Mastercard senior advisor and former Saks chairman and CEO. Mr. Sadove, I mean, when we look at this report highlighting here, it looks like Europe saw its recovery here come back, being hit by less than 40% of what we saw relative to last year, whereas there's an 80% drop we're seeing play out in North America. So what do you make of that and what it might signal ahead here for the US?

STEVE SADOVE: Well, I think what we're seeing is green shoots in the recovery in the travel and entertainment sector. The Mastercard recovery insights, they take-- they've gone and take a look globally, both in the US as well as overseas, of how's the consumer behaving in this environment? And what you saw was this enormously steep falloff, let's call it, in that March, April timeframe.

And in Europe, as you've started to see the recovery and the cases go down in countries like Italy, France, Germany, you've started to see a resurgence of restaurants and travel, less so in terms of the airlines, where you do have airline recovery. It's in short hops. But what you're seeing is what I call a lot of the car travel. Gasoline consumption up, local hotels, you're seeing boutique hotels performing extremely well, consumption of short distance-- people have been at home. They've been pent up.

In Italy and France, for example, you've started to-- as the pandemic sort of eased out and the cases went down, people wanted to get out. You see a little bit more cross-border shopping, cross-border travel. And I think the implications are that as we come out in the US, that you've seen this recovery happening in Europe, and it is an opportunity to potentially where you might see it happening going in the US as well.

ZACK GUZMAN: Yeah, we'd like to believe that. I mean, when you look at some of the other statistics we've gotten here, too-- JPMorgan sharing their credit card and debit card spend here-- we've seen that flatline since about June. I mean, what does it say about the recovery here and how much may have been tied to some of those benefits that we saw roll off at the end of July in terms of $600 in additional unemployment benefits? What's your take on how that might be weighing down the idea of consumers getting back out there to spend?

STEVE SADOVE: Well, I think-- Zack, I think your point's very well taken, that you had this steep drop in consumption in that March, April timeframe-- let's call it a minus 14% at the depths of the pandemic-- and that you've seen a gradual improvement. It was a little bit of a V to the point where you got down to the low-single-digit declines and it more or less stabilized at that low-single-digit decline level, whereas coming into the pandemic, growth and retail was at about a plus 4%. So we're not seeing that growth.

I'm not so sure I'd tie it to the slowdown from the PPP checks, because we were seeing that sort of June, July timeframe, when you were still getting the support, seeing that decline in that low-single-digit range. I think looking forward, that's certainly a question that people are going to be looking at, because the lower-end consumer had performed extremely well during the time when we had the support. So that's a question mark that's out there.

You still have a lot of small businesses-- oftentimes, people get-- everybody gets a wow, the stock market is doing so well. There's a bifurcation between the stock market and Main Street and what's going on with the consumer. And you have small bus-- big businesses. We see it in the tech companies. We see it in the large big box companies performing exceptionally well.

But the small businesses are hurting. And the PPP did have an enormous impact on some of those companies. So now we really have to look at the issue, where's the consumer going today? I'm encouraged by the travel and entertainment trends that you see in Europe.

You also see some of it in the US. If you look at restaurants, hotels, you've seen an uptick. It's not as much as you've seen in Europe. But you're starting to see improvement.

As people are getting out, they are going-- it's much more the consumer end of the business, not the business end. So consumers are going and taking short vacations. We haven't yet seen it in the business sector.