‘Consumer confidence is up at pre-pandemic levels’: Refinitiv

Jharonne Martis, Refinitiv Director of Consumer Research, joins Yahoo Finance Live to discuss the state of the retail industry an outlook on retail amid COVID-19 recovery.

Video Transcript

ALEXIS CHRISTOFOROUS: Big box retailers like Walmart, Target, Best Buy, Home Depot, they've been among the major pandemic winners as all those stimulus checks get spent by consumers at those stores and others. We also saw consumer confidence jumping to a 14-month high. That's all been great news for these retailers. But the question is, how long can the good times keep on rolling?

Here to break it down for us is Jharonne Martis, Director of Consumer Research at Refinitiv. Jharonne, good to see you. I want to start with Best Buy, which was out just today, strong earnings on both the top and bottom line. But even the CEO had to admit she expects things to slow down in the second half of the year as the economy continues to reopen. Do you think that retailers across the board should expect things to sort of come down from that peak later in the year?

JHARONNE MARTIS: We can definitely expect that going into the third quarter of this year. But then our history, our research at Refinitiv shows that no matter how the economy is doing, consumer spending always picks up in the fourth quarter, just in time for the holiday season. What's also very important to know is that even though things might slow down, consumers have a significant amount of gift cards sitting in their wallets, because that was the number one gift during the pandemic.

And they still haven't redeemed those, which means there is some pent-up demand still possible to be-- for consumers to use as the economy reopens. And we could see those revenues being reported later. Because the thing about the gift cards are they don't actually get recorded until the consumer actually uses it-- uses it. And then we're seeing as the consumers are waiting for the economy to reopen to actually go visit those stores again and then go redeem those gift cards.

KRISTIN MYERS: So then if you had to try and time it, when do you think you might see that-- you know, that surge or some of that peak in demand? Does it happen once we really start seeing people going back to the offices and folks want to buy work clothes? Is it when schools reopen and parents are buying things for their children, so maybe more the fall? When do you think this really comes back?

JHARONNE MARTIS: Well, the good news is we're already seeing some of it come back. The Refinitiv consumer confidence is up at pre-pandemic levels. But one key indicator, as well, that helped us gauge this was that the average discount has actually come down in the United States since mid-March, Refinitiv discovered in a collaboration with [INAUDIBLE]. And this is key because since the last recession, the previous recession in 2008, consumers have really been conditioned to only open up their wallets if they find that they're getting a good value or discount.

But this finally changed since March of this year. They're paying higher prices for the latest merchant-- merchandise. So we're already seeing some of that happening right now in 2021. Now when we look at the overall data, 2020 was the year of the pandemic. 2021 seems to be the transition year. And it's not until 2022 that we're finally going to see the reopening consumers going fully more back to normal based on the data that we have here at Refinitiv.

ALEXIS CHRISTOFOROUS: You know, Best Buy made a pretty interesting announcement, and I'm wondering if you think other retailers will follow suit. Their employees, which they call "Blue Shirts," they're going to allow them to fulfill some digital orders and actually go to people's homes that are somewhat local and deliver those electronics themselves. They said it's-- it's a way for them to help with the surge in-- in online orders. What do you think about that? Is that the best use of resources? And might we see other retailers do the same?

JHARONNE MARTIS: I think the best use of resources and the biggest trend that we've seen this year is how retailers are changing the structure of their stores in order to help with the shipping cost from the freight costs that have gone up. So even Best Buy was very vocal about that today. They're changing the structure of their stores in order to increase the footage for distribution centers in order to fulfill a lot of orders.

And then they're reducing their storefront in order to have a more curated product offering for their customers. Now by using their stores as the fulfillment centers and doing more so than usual, they're able to deliver these products faster, which in return then translates into customer loyalty, but significantly also reduce those shipping costs, which is critical right now based on all the mess of the pandemic and everything that happened with freight this year.

KRISTIN MYERS: I'm curious to know, as you're talking there about some of the stores, what you think the outlook is for malls? Are they going to return? It had seemed for quite a bit of time that no one was visiting them.

It seems like we've made this shift back to some of those brick and mortar stores, malls reopening, at least here in New York. At my mall close to my house, it seems incredibly crowded, seems like business is booming there. What do you make of the state of the mall going forward?

JHARONNE MARTIS: So we're definitely seeing a pickup in traffic because of that pent-up demand. But all the data points that there's-- even though consumers go back to the stores and want to see and try the merchandise, they're still fulfilling a lot of those orders online. In fact, this year we're seeing that e-commerce as a percentage of revenue for a lot of the retailers have become significantly stronger.

They're posting double-digit comps, e-commerce growth, on top of very difficult comparisons from last year, which is telling us that these retailers are gaining market share. Yes, the consumer has-- is starting to go back to-- to the mall because they want to get out of the house and start doing something But in general, mall traffic has been struggling even before the pandemic, especially the department stores, the apparel. So we will see some of that come back in 2021, like we said it's the transition year, but we won't see it fully recover until 2022 is when we'll finally get a good view if these-- if the shift to online is permanent or is fading.

ALEXIS CHRISTOFOROUS: I want to ask you about some of the-- the winners here. I mean, Macy's surprised us. They had a surprise profit. They hiked their full-year outlook. Prior to the pandemic, you know, they were really sucking wind at Macy's. Who do you think is best positioned or who has surprised you the most? And who might actually do well post-pandemic?

JHARONNE MARTIS: Well, one of the department stores that analysts polled by Refinitiv are very bullish on is Kohl's, not only because it's off-mall location, but also with its recent collaboration with Sephora, which is expected to be introduced later this year, just in time for the holiday season. So Kohl's is a favorite among the department stores. Among the apparel, Gap will report later this afternoon.

Athleta and Old Navy continue to be two of their strongest division, Old Navy because of the back-to-school season which is happening right now, it tends to be a very strong retailer, and Athleta because the athleisure wear continues to be a very strong trend. So those two names are two that are surprisingly still doing good despite their peers that have been suffering more because of the pandemic.

ALEXIS CHRISTOFOROUS: All right, Jharonne Martis, Director of Consumer Research at Refinitiv. Thanks so much for joining us today.