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Discount retailers, supermarkets are best positioned to weather the pandemic: expert

Yahoo Finance’s Alexis Christoforous and Brian Sozzi discuss what to expect this holiday shopping season with Perry Mandarino, B. Riley Securities, Inc. Co-Head of Investment Banking.

Video Transcript

ALEXIS CHRISTOFOROUS: The long-awaited Amazon Prime Day is officially here. The e-commerce giant has slashed prices on thousands of items, kicking off early holiday shopping season amid the COVID-19 pandemic. Joining us now to discuss is Perry Mandarino of B. Riley FBR. Perry, good to see you. So Amazon Prime Day, we know usually happens in July. The fact that it's now in October, do you think, and if it remains there perhaps in the coming years, do you think that it becomes the new Black Friday?

PERRY MANDARINO: Well, sure, and good morning. From what I see, is that there's a real, as Victoria just mentioned, this world today is just so different. Not only is it a presidential election year, it is also with COVID. So there's just so much uncertainty in the economy and the world. So I think given what happened when COVID first hit with the supply chain disruptions on how it took so long to deliver goods for Amazon, I think having an earlier shopping season is absolutely critical.

People may be wanting to spend more given the results of the election, if we even know the results of the election on November 4. And the push to discount early is happening. And it's not just Amazon. A bunch of other retailers have started early. They started early sales beginning in October. I think Target announced that they're doing, and a couple, and Walmart announced that they're doing Black Friday prices throughout the whole month of November. So it's a different dynamic this year.

BRIAN SOZZI: Perry, you co-head B. Riley's investment banking business, and it worked on a lot of high profile restructurings this year. Just the fact that Amazon might rack in or rake in close to $10 billion worldwide from Prime Day, does that cause more bankruptcies in retail amongst the weakest players post holiday shopping season?

PERRY MANDARINO: Well, certainly. If retailers who are on the edge right now don't have really strong seasons, come January, you could see a whole bunch of bankruptcies. I think the bankruptcies are probably more or less done for this year. Most of the liquidations that have been, that were going on are completed. So Amazon and everyone else is not competing against liquidations anymore. They're competing against themselves.

But sure. Coupled with the debt that retailers have, retail was a sector that was never meant to have a lot of debt. Going back to the '70s, factor started in earlier than that for cyclical borrowing needs, and then junk bonds came along. But retail is generally a sector that should not have a lot of debt.

ALEXIS CHRISTOFOROUS: Perry, you've been doing this a while. You've been in the business of restructuring and turnaround since 1987, including in retail. So you've seen lots of companies come and go.

PERRY MANDARINO: Right.

ALEXIS CHRISTOFOROUS: To your mind, who in the retail sector is best positioned? And I feel like a broken record, because we keep saying Walmart and Amazon. But if that's what you say, that's what you say. But who in your mind is best positioned here to weather this, and perhaps maybe even come out of the pandemic stronger than before?

PERRY MANDARINO: Sure. And I think generally it's discount retailers. I think it is, I think they, I think retailers in general have learned a lot during the pandemic. I think they learned to control inventory levels. If you go to different department stores now, go to different stores, they don't seem, the shelves don't seem as full. But the sales are still pretty strong. Look at all their earnings and comp store sales that have been released.

So I think one of the things that the pandemic did is probably give retailers a different way to look at business that maybe you don't have to have everything for everyone and your sales are still going to remain strong. So I think discounters are going to remain strong. I mean supermarkets. They were, there were a bunch of supermarket chains that were in real trouble, and now they are thriving. They had some supply issues, but they seem to be back to normal now. So I think the discounters. I think value retailers. I think they are going to thrive post pandemic and post this year.

[INTERPOSING VOICES]

BRIAN SOZZI: What are you hearing on?

[INTERPOSING VOICES]

BRIAN SOZZI: Oh, go ahead, Alexis.

ALEXIS CHRISTOFOROUS: Sorry. When you say discount retailers, do you mean like the Dollar Generals of the world or a Target?

PERRY MANDARINO: Everyone, everything and in between, everyone in between. Even there's some that are in bankruptcy that are doing very well, like Tuesday Mornings' doing very well in bankruptcy based on their publicly reported numbers. So I think that trend will continue. I think having good value and selection, in retail, one of the main tenants of retail is having the product that identifying with your customers. Even apparel. I think you'll see online apparel take off, which could potentially be a problem for some of the mall-based stores.

BRIAN SOZZI: Perry, what are you hearing in terms of industry consolidation? Clearly, there has to be more. And what does industry consolidation next year look like? Is this where Amazon buys a decaying Macy's? What does it look like to you?

PERRY MANDARINO: I do believe consolidation will absolutely be, will happen in retail. Amazon, it seems they've been kicking around looking at retailers over the years. I was involved in one or two where they took a look going back five years, but they haven't pulled the trigger yet, other than obviously, Whole Foods. So yeah, could I see Amazon doing something bold? I mean, their leader is not one of the richest guys in the world because he's been shy. And I think they will again, change the way that online retailing is done by perhaps having some type of brick and mortar footprint.

ALEXIS CHRISTOFOROUS: All right, Perry Mandarino of B. Riley FBR, thank you.