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How Amazon will navigate expansion given its ‘terrible’ brick and mortar history

Yahoo Finance’s Myles Udland, Julie Hyman, and Brian Sozzi discuss Amazon’s plans to open department stores in the U.S., July’s retail sales data, and overall outlook for retailers with Jan Rogers Kniffen, J Rogers Kniffen WWE CEO.

Video Transcript

- Earning season is wrapping up, which means it has been a big week for the retail sector. Walmart, Target, among the major reporters out of the retail industry over the last several days. Joining us now to talk about the state of that industry and everything else happening in retail, Jan Rogers Kniffen and he's the CEO J. Rogers Kniffen Worldwide Enterprises. Jan, always great to have you on the program.

Let's start with just some of these results we've gotten out from the last-- some of these big retailers. We have Target and Walmart telling us that their best months of the quarter or July. As we have all this consternation about the health of the recovery, how are you thinking about the retail industry and its position in the economy today?

JAN ROGERS KNIFFEN: Through yesterday, sales are still great. Nobody's talked about sales slowing down in August. People that did say anything about it said August was good. Even Children's Place came out and they said maybe July wasn't quite as strong as we thought, but we've been going crazy here in August. So back to school is going really, really well. It started early. It's continuing to just explode and it's going to run long.

There is nothing wrong with the consumer from the point of view of the ability to spend or the willingness to spend. And so far, they haven't stepped away from my kind of retail. They may have stepped away a little bit from restaurants, but they're showing no inclination to stop spending on discretionary retail. Apparel, clothes, shoes, all that sort of stuff is going really, really well. They pulled back a little bit on DIY, but that was just the normal rotation. That's been fabulous.

And now we're starting to go places again. We're thinking about going back to the office. We're thinking about going on vacation and when we do that, we buy apparel, clothes, and shoes. And that's still happening really, really well right through yesterday.

- Jan, you think we're set up for a blowout holiday season?

JAN ROGERS KNIFFEN: We will have the best back to school in history and we will have the best holiday in history, despite supply chain issues, despite the ports being backed up. We are still going to have a fabulous holiday. I'm telling you, if you want to buy it, it is not going to get cheaper on Black Friday or Cyber Monday and it will be gone if you don't go ahead and buy it. Because that's what inventories look like today. Gross margins will be the best we've ever seen for holiday. People will run out of merchandise in some cases. That may constrain sales a smidge, but earnings will be fabulous because we're not going to see any downward pressure due to unplanned markdowns.

- Jan, it's Julie here. Why isn't the Delta variant more of an issue? I mean, we're hearing it from airlines, right? We're hearing it from some travel companies. So there are segments of the economy that are being affected by this thing. Why isn't retail seemingly being affected?

JAN ROGERS KNIFFEN: Well, maybe it is being affected, but it's growing so fast right now that you can't see it if it's being affected. So if it is, it's being overwhelmed by people's desire to go back and buy stuff. So we're not-- we can't see it because traffic got better in the first week of August than it's been since it started and it got better than that in the second week of August. So we're certainly not seeing it in foot traffic and online businesses continued to be good. Better than I thought it could hold up even, and I was one of the most optimistic people on online businesses.

So we're still seeing the consumer spend. Why is that? The consumer is sitting on $2 trillion worth of excess savings. They don't have any problems with their credit cards right now. Their asset base is rising. Employment's getting better. You just saw the record employment numbers. So what is there to slow the consumer down, other than being afraid? And right now they're not afraid of enough of COVID D in the shopping environment, it appears, to have slowed them down.

I don't think it's going to because what we're seeing is infections, hospitalizations and deaths among unvaccinated people. People like me, who don't want to get it, know that if we do get it, we're getting a bad cold maybe. And I think people have started to internalize that because they're sure not hesitating to go to the malls. They're not hesitating to go to the strip centers. They're out shopping. And they certainly didn't hesitate to go to Walmart or Target, and they haven't up through yesterday. And if they were going to, one would have thought they might have started. We're also not seeing hoarding by the way, like we did when this all started.

- Jan, speaking of the malls, if you're a mall executive at a Nordstrom, Macy's, Dillard's, you name it, all those stores that are still open, should you be quaking in your boots that an Amazon might be opening, might be opening, a 30,000 square foot store somewhere in the US?

JAN ROGERS KNIFFEN: Well, I don't think so. I have been saying since 2014 that Amazon needed 1,000 stores to continue to be growing and competitive in the marketplace. Amazon does half of the online business. They do virtually nothing in stores, as far as an important number. And they need that growth to continue to compete with the Walmarts and the Targets. And so Amazon, yes, is a great online retailer, but so far they've been a pretty terrible brick and mortar retailer. None of the stores that you've been in, I'm sure set your heart aflame, and they haven't done much with Whole Foods. So they need to learn that business.

I have been saying all along and I've been saying this since 2014 as well, they should be out buying Kohl's. They'll get their 1,000 stores in one fell swoop. They'd have a management team that could run them. They could put anything they wanted to in them. And the stores are probably right now on average, 25,000 square feet bigger than they need to be, so they can certainly be mini distribution centers and customer service centers. And they're already doing business with Kohl's. So why they would want a Greenfield and start building 30,000, 30,000, 30,000 and try to get to the 1,000 stores they need, is a mystery to me, but it looks like that's what they're going to do.

But when they do, now they've got to learn to run that business and that's going to be a long process. So I wouldn't be quaking in my boots, but I'd sure be paying close attention because after all, they've got all the capital in the world, they've got all kinds of talent, and they can do anything they want to do. They just haven't done brick and mortar very well so far.

- Yeah, certainly, to say their heart hasn't been in it, might be a little bit of an understatement. We'll see if Amazon's new leadership changes things up there. Jan Rogers Kniffen with J. Rogers Kniffen Worldwide. Jan, appreciate the time, as always. I know we'll be in touch.

JAN ROGERS KNIFFEN: Thank you.

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