Retail sales surge 1.9% in September as consumers' shopping habits shift

Yahoo Finance's Alexis Christoforus, Brian Sozzi and Janet Kloppenburg of JJK Research discuss retail sales as consumer trends shift amid the coronavirus.

Video Transcript

ALEXIS CHRISTOFOROUS: Brian, I know, of course, you watch the retail sector very closely. And so far, we've gotten some key reports. We've got VF this morning, Levi's also better than expected. How well positioned do you think these companies are now as we start, I guess, the holiday shopping season pretty early this year?

BRIAN SOZZI: Been a tough few months, Alexis, for these apparel players. But what VF Corp. did is what Levi's announced too. And I think what a lot of investors should look for in well-run potential retail investments ahead of Black Friday, VF Corp., like Levi's, has managed Wall Street estimates very good. They smashed earnings estimates out today.

Like Levi's, they have cut a good bit of cost out of their business. Not enough, given the sales declines, but again, they have cut a lot of costs out. And then [INAUDIBLE] buried in this VF Corp. release this morning is that they see a path to return to growth within the next six months. And that's very important and very believable.

ALEXIS CHRISTOFOROUS: Yeah, that's huge when a lot of companies just can't seem to see through the forest right now. All right, I want to dig deeper into this retail sales report, and I welcome in Janet Kloppenburg, who covers the retail industry. Good morning, Janet. Just what are your first initial thoughts when you saw this number across the wires? Retail sales up 1.9%, were you surprised by that strength?

JANET KLOPPENBURG: Well, I knew it was a great month, September versus August. August was very challenging. The number actually was a bit better than I would have thought, but the strength was not a surprise, and the upside. So August was very challenging. Back to school was nowhere, no schools were starting.

We saw a pickup beginning in September related to the later back to school to a seasonal shift in weather that drove wardrobing. Also, consumers spending a lot more time outside, drove a lot of the sporting goods in active sales increases. And let's remember, consumers aren't spending on traveling or entertaining, so they're shifting their spending right now to, as you talked about, create more comfort for their work from home, study from home, and constricted lifestyles.

BRIAN SOZZI: Janet, promotions have been really pulled forward. You certainly had Amazon Prime Day, of course, you had Walmart, Target doing its thing too, as well. Who do you think is best positioned to win this holiday season?

JANET KLOPPENBURG: Well, I think the e-com platforms, like Amazon, will do extremely well. I think Walmart and Target have done exceptionally well in beefing up their digital offering. But I also think that some of the well-positioned apparel players who have dominance and, you know, over 30% of their business in the digital channel and have really focused on active, so that would be Aerie, American Eagle, and Athleta, at Gap, of course, Lululemon.

Ulta has invested tremendously in their digital channel, well-positioned in the beauty space as people think about the beauty sector for gifts this holiday.

ALEXIS CHRISTOFOROUS: I'm curious what demand is like for luxury goods during this time. What are you seeing from the Louis Vuittons of the world and the Tiffany's of the world?

JANET KLOPPENBURG So very exciting numbers on both of them yesterday. Both inflected positive in their fa-- well, LVMH positive in the fashion business. And Tiffany inflected positive in October. Consumers are shifting to items of great value and long-term value. Maybe they can't take that trip to Europe or to Asia that they were wanting, so they're spending money on products with long-lasting value.

And I think that they'll be gifting to their loved ones during this fairly uncertain time with high-ticket aspirational luxury products. What we're seeing is that people can't travel. So US consumers are spending more money at home on luxury. The China business for LVMH was up significantly and up close to 100% for Tiffany as the locals spend more money at home with travel very, very restrictive.

BRIAN SOZZI: Janet, which retailer in the mall are you most concerned about this holiday season? And that one or two-- those one or two retailers that you say, you know what? They're just not well positioned, and they're going to have a really bad holiday season.

JANET KLOPPENBURG: I think the department stores are very, very vulnerable. First of all, they've cut their inventories by and significantly. There is not a lot of newness, there's not a lot of fashion. And I think that the consumers are going to look for that, the newness and the fashion. And the important brand names, either on the brand name sites or at the specialty stores that they-- that these brands command.

And so I worry very much about the department store space. You know, you could talk about Macy's or Nordstrom's, but I think they've cut back inventory. Their appeal is very low right now, and the consumer is finding excitement elsewhere in both the digital and the power center locations.

ALEXIS CHRISTOFOROUS: Janet, we see these retail bankruptcies piling up. 2020 is looking like it's going to be a record year for these bankruptcies. JC Penney, no big surprise there. J. Crew, Neiman Marcus, I mean, you name it. Lots of companies that we've known for decades filing for Chapter 11. Do you think that we've peaked or more to come? And if so, who's on the hit list?

JANET KLOPPENBURG: Well, I think we-- I think we've definitely peaked. I think we've seen the worst of it, and I think we'll see some restructuring of some of the names that you talked about. But I think that in the department store sector and the discount sector, we could continue to see more, some of the weaker players and the B strip center malls as well. And I think that yields a lot of market share for the dominant power center players, like a Target, a Walmart, and Ulta, the off-price retailers, and even a Bath & Body Works, where, you know, consumers are flocking to for their antibac and their hand sanitizers.

ALEXIS CHRISTOFOROUS: Yeah, and they were-- that was a retail-- great example there that was struggling for a long time. All right, Janet Kloppenburg of JJK Research, always good to see you. Have a good weekend.

JANET KLOPPENBURG: Thank you, and to you.