Refinitiv director of consumer research: Don't expect aggressive discounts from retailers this year

Refinitiv Director of Consumer Research Jharonne Martis joins Yahoo Finance's Brian Sozzi to discuss some winners and losers of this year's holiday shopping season.

Video Transcript

[MUSIC PLAYING]

BRIAN SOZZI: All right, welcome back to Yahoo Finance's special coverage of the future of retail. I am Brian Sozzi, still hanging out in New York City's Greeley Square. Very, very cold, but no better time to talk about retail with our-- with Refinitiv's Jharonne Martis. Jharonne, good to see you. It's the first time I've seen you, like, since the pandemic. Thanks for coming down here.

JHARONNE MARTIS: Thanks so much for having me. It's good to be here.

BRIAN SOZZI: All right, so it is Black Friday week. What are some of your expectations? How will shopping shape up?

JHARONNE MARTIS: Well, it's interesting because, in a collaboration with StyleSage, Refinitiv discovered that this Black Friday, things will be less discounted than compared to the last five years. So we've been doing this collaboration since 2016. And I can tell you that less than 50% of all of the merchandise in the malls is going to be on sale. Traditionally, this is over 50%. Department stores traditionally have almost 80% of their merchandise on sale. This year round, it will only be a little bit over 60%, which is an improvement because, as you know, they've always seen their margins hurt.

BRIAN SOZZI: Where'd the sales go? Where are my sales? I need my Black Friday deals.

JHARONNE MARTIS: I know, I know. So there will be deals enough to entice you into the store, but not everything will be on sale. So if you combine, you know, the inventory constraints with the supply chain issues, combine that with the pent-up demand, and you have a formula that really gives retailers the upper hand into definitely holding back, pulling back on aggressive discounting.

BRIAN SOZZI: Sounds like a wallet-busting holiday shopping season. This is-- to me, this sounds like inflation in its finest form.

JHARONNE MARTIS: Absolutely. So as you know, retailers are reporting third quarter earnings right now, and the cost of goods sold are already spiking up. If we look at the forecast for the fourth quarter, the Refinitiv data shows that this is expected to increase even further for the holiday season. And then we're expected to see gross profit margins decline. So they have to be-- retailers have to be very strategic with how they're going to offer these discountings in order not to hurt profit margins further, because they are hurting from the inflation.

BRIAN SOZZI: What retailers are positioned to really win?

JHARONNE MARTIS: The ones who are positioned better are the discounters, especially like Target and Walmart, because we're already seeing that the middle class consumer is trading down. They-- they're already being hit with higher gasoline prices, so they want to pay less when it comes to groceries and everything else. So Walmart already told us last week that they're seeing a significant amount of new shoppers coming to the store because of this, because of higher prices, and they want everyday values. Also, wellness is on top of consumers' minds.

BRIAN SOZZI: It's been a tough two years, Jharonne.

JHARONNE MARTIS: Yes.

BRIAN SOZZI: I need to be pampered.

JHARONNE MARTIS: Exactly. So people don't only want to feel good, but they want to look good. So Lululemon posted impressive comps of 26% last year. And they're expected to be even higher for the holiday season. Dick's Sporting Goods, Hibbett Sporting Goods, they're all expected to do well. Nike, as you heard from Foot Locker, is still a favorite, the discounters. And then, consumers are still fixing up their houses. As you know, many Americans are traveling this week alone for Thanksgiving, more so than pre-pandemic. So as a result, a lot of people are fixing up their houses. So then you have the Home Depot and the home improvement, home furnishing. They're all going to do very well this holiday season.

BRIAN SOZZI: You mentioned gas prices. When you talk to shoppers and consumers more broadly, how big an impact is that right now? Depending where you go in this country, you could see $5 a gallon in terms of gas.

JHARONNE MARTIS: Absolutely. And one thing we're already seeing, you know, we talk a little bit about wellness, but also, you know, the fact that a lot of consumers did buy bicycles during the pandemic, you know. So we could--

[INTERPOSING VOICES]

BRIAN SOZZI: --higher gas prices--

JHARONNE MARTIS: Exactly.

BRIAN SOZZI: --is buy a bike.

JHARONNE MARTIS: Exactly. And also, you're working on your own wellness. But having said that, despite gasoline prices, the data does show that the sold out rate for the month of November is already higher than the previous two holiday seasons combined. And this is mainly because consumers have that pent-up demand. And despite the higher prices, they are shopping. So it does point out to a merry holiday season for the retailers.

BRIAN SOZZI: I'm still getting used to the crowds around here. This is totally a different scene compared to what we saw last year. Are there any losers this holiday season, companies that may not get it done?

JHARONNE MARTIS: So the department stores and mall stores have been out of favor even before the pandemic, so they continue to struggle. And when we look at the discount rates, they are still high, which could affect gross margins. They have come down, as we spoke, but gross margins could be highly affected by-- at the department stores and at the mall stores.

Now, what's also important is that they are also suffering from inflation. Their merchandise hasn't changed much. We're still seeing the same designers at the department stores. So it's going to be an interesting quarter for them as the reopening has happened.

BRIAN SOZZI: Richard Johnson, Foot Locker CEO, I was just-- we were just talking to him moments ago, and he's still dealing with supply chain bottlenecks, where, you know, the consumer may come to a Foot Locker store, you may not get your first choice.

JHARONNE MARTIS: Right.

BRIAN SOZZI: You may not get your second choice. Maybe you get your third choice. How much longer are these bottlenecks going to continue?

JHARONNE MARTIS: So the Refinitiv data points out that we're expected to see inflation and supply issues continue into the second half of the year at least. And consumers are concerned about it. The latest reading on consumer confidence showed that consumers are concerned about what this is going to mean for the future in 2022. So they're worried about is this really going to hurt my investments, my savings, and to some extent, their job situation. So we might start seeing consumers hold back a little bit on spending in the first quarter of 2022. Before the holiday season, they will shop.

BRIAN SOZZI: Yeah, well, certainly. We're really in the thick of retail earnings season. We got those Walmart results. We got Target. After the bell, we had Gap, Nordstrom, I believe, as well. What have been some of your takeaways?

JHARONNE MARTIS: Sure. So it looks like the third quarter spending actually did slow down a little bit. And it's expected to pick up. Consumers took a mini break before the holiday season. What's interesting about the third quarter, though, is that online spending as a percentage of total US retail sales did decline a little bit, suggesting that consumers actually went more to the stores. They spent more money at the stores than they did online, which is the first time we saw that slowdown since the pandemic. So but looking forward to the fourth quarter, our estimates do suggest that this will pick up. Consumers will go online, as they don't want to be all the time out in the cold like we do.

BRIAN SOZZI: All right, well, you know, nobody's watching here, let's-- per se. You know, just between us, what are you buying for yourself this holiday season?

JHARONNE MARTIS: Ah. I definitely am into the wellness sector, as well. I do enjoy my yoga pants and to work out at home.

BRIAN SOZZI: Fair enough. Lululemon has gotten expensive, I will say. There's lots of inflation going on at Lululemon.

JHARONNE MARTIS: And to your point, Target has stolen a lot of that market share. The athleisure merchandise at Target has resonated very well with consumers, and they've stolen a lot of that market share from the department stores.

BRIAN SOZZI: Let the record show I think I'm buying myself a watch. Refinitiv's Jharonne Martis, thank you for braving this very cold weather to come out here. Happy Thanksgiving.

JHARONNE MARTIS: Happy Thanksgiving. Thank you.