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Consumers are willing to pay full price as 'they want fashion, excitement': Mastercard exec

Steve Sadove, Mastercard Senior Adviser and Former Saks Chairman-CEO, joins Yahoo Finance Live to discuss the state of the consumer amid inflation and early beginnings to the holiday shopping season, in addition to retail inventory and experience spending across sectors.

Video Transcript

- High inflation is a big challenge for consumers. Forcing many Americans to adjust their spending habits. A new survey out from Mastercard taking a look at how higher prices could impact holiday sales. We want to bring in Steve Sadove. He's Mastercard's Senior Advisor. Also former Saks Chairman and CEO. Steve, it's great to see you. So from your perspective from what you found in this survey, how is higher inflation affecting spending plans this year?

STEVE SADOVE: Well, I think the consumer has been very healthy. And the numbers that we've seen through August would reflect that sales are holding up quite well. You saw sales through August up in the almost 12% range. The holiday forecast is for sales to be up in the 7% range. And that's reflecting about a 7% inflation rate. 7%, 8% inflation. So what we're seeing is the dollars are up. Unit volume is probably relatively static. And the consumers are still pretty healthy. But you see a 7% isn't as fast as the 11% or 12% that we saw over the course of the summer. So I would anticipate we're starting to see a little bit of a slowdown. We're seeing a more promotional environment. The consumer is feeling the pain of inflation right now.

- And Steve, we know a lot of companies have been looking at what's been happening with all this inventory that they already had piled up. How does that play into some of the trends that we might see?

STEVE SADOVE: Well, I think it's an important factor. Right now, a number of companies ordered much too much product. Now it's really-- step back from this for a moment. A year ago, we didn't have enough product. Everything was full price selling. The supply chain was broken. And inventories were quite low.

A lot of companies ordered a lot more of the product that was selling at the time. That was the home related products. It was athleisure, television sets, home goods. And all that product started coming in the spring and early summer this year. And retailers had much too much of that inventory. You saw it in the Walmart and the Target types of inventory numbers. And you're seeing a lot of markdowns.

That product has to be cleared from the shelves before you're able to really get the impact of some of the new goods. The consumer is paying full price for a lot of the new goods. They want fashion. They want excitement. If it's in the apparel world, they want to go out to parties and weddings. So they need dress up goods. They don't need the athleisure products. So the prices of some of those goods that have been on the shelves are going to be the depressant to the overall inflation rate.

But what you're seeing is companies that are strong are going to be ordering plenty of new product. I worry about some of the balance sheet strapped companies that are going to cut orders. And then they're not going to have product. But it's amazing how quickly it turns from last year of being short on product, to this year you're going to have plenty of product. You may not find exactly that hot new item that you want if they didn't order enough. But I think there'll be plenty of product this fall.

- I'm particularly fascinated at the Mastercard travel snapshot. What do you make of the strange disparity between airline prices down versus pre-pandemic and lodging a 40%?

STEVE SADOVE: Well, first of all, I think that start with the fact that the consumer wants to get out again. And you're seeing it in lodging. You're seeing it in overall travel. You've got to look at it in terms of a little bit in the short term the increases are very dramatic relative to year ago. If you look at it versus a pre-pandemic, you're starting to get yourself back to some of the numbers that we've seen in the pre-pandemic period. And this is across categories. It's not just in the travel. Look at it in terms of what's happening with restaurants. Luxury sector.

All of these sectors are now getting back to-- if I look at total retail, it's probably 27%. In the month of August I think was 22% versus pre-pandemic levels. If you look at it across categories, it doesn't vary that much. Where you see the variation is in the categories that had these wild swings during the pandemic that are getting back to the norm of where they were.

So if you look at-- give an example. Even in the internet, month on month, you're not seeing that. Month on year let's say, versus year ago. The holiday forecast is overall 7%. You're seeing e-commerce going to be growing somewhere a little bit lower than that in the 4% range. Stores growing higher. But the reality is that internet sales have grown 50% since the pandemic. If you look at your question relative to travel, people still haven't gotten back to the travel levels of pre-pandemic. Overall, you're seeing pricing because you have capacity that has been decreased.

So you don't have as many flights or availability. So prices are going up. In the hotel sector, you're seeing prices coming up, especially because you have this surge in demand.

- And Steve, real quick, We also had the looming rail strike. Right? $2 billion a day could be potentially impacted when we talk about the economic implications. It could potentially cripple supply chains. How big of a headwind, how big of a challenge, could this be for the retail sector?

STEVE SADOVE: Oh it could be an enormous impact on the retail sector. Go back to the problems that we had in the supply chain last year where you couldn't get the products in for the holidays. I don't anticipate that this is going to last. If it did, that it would last that long, or there would be alternative solutions, but has an enormous impact if the supply chains get disrupted again. We're only now starting to see in the commodity prices, in the shipping costs, getting back to some sense of normality.

But labor costs are already high. I don't see them coming down quickly. So if you have a disruption in the transportation side of this, I think it could cause a real problem in an already tough environment. This is going to be a promotional holiday season. It's going to be early. And I think that the supply chain-- and if you have a disruption, you're already going to start promoting it in October. So if this thing comes along soon, we're going to have a problem.