A Macy’s e-commerce spinoff would be ‘deadly’ for the retailer, analyst says

Forrester Research Retail Analyst Sucharita Kodali joins Yahoo Finance Live to discuss retail earnings for Home Depot and Macy's.

Video Transcript

JULIE HYMAN: And speaking of increased prices, that's something some of the retailers have been benefiting from. We heard from Macy's and Home Depot this morning. So let's get some more detail and perspective on that. Sucharita Kodali is joining us now, Forrester Research retail analyst. Good morning, Sucharita. We are looking at these numbers, particularly for Macy's, that show perhaps some surprising strength in apparel here that people are still going out there, they're buying, and we don't appear to be seeing price pushback. Is that your interpretation as well?

SUCHARITA KODALI: Well, there, I think that a lot of these numbers that we're seeing are really a reflection of a strong Q4. We knew it was going to be a strong Q4 because other retailers had been saying that it would be a strong Q4. I think that what is going to be the big question is that Macy's seemed to have a strong outlook for 2022, which does suggest that it's maybe a little bit more bullish than other retailers, who are wondering if consumers will continue to be purchasing in their categories that are particularly discretionary, like apparel and footwear, and how they will actually purchase with respect to these higher prices.

The truth is, is that there are a lot of-- there's a lot of competition in apparel. There's growing competition in apparel, particularly with a lot of these online Chinese sellers. So even though I have no doubt that they had a great Q4, which was really just kind of the lingering effects of people purchasing because they had held back purchasing through the pandemic, I am not super bullish on the 2022 numbers. I think that apparel will be much, much softer, especially for the US retailers.

BRIAN SOZZI: Do you think Macy's, then, is just being too optimistic for the year?

SUCHARITA KODALI: It sounds like they're being very optimistic. And they may be really optimistic for good reasons. I mean, you have to remember that they're in the middle of an activist discussion right now, where there are investors that want to break out its dot com business, that want to split up the company. And that would be pretty deadly for Macy's overall.

So even though some shareholders may benefit, the employees would really suffer, landlords would suffer. And that would probably pretty much mean the end of Macy's, I would say. So I think that, kind of, it is in their interest to be as optimistic as possible and to try to persuade investors that Macy's is actually operating from a position of strength.

JULIE HYMAN: Sounds like you agree with Brian Sozzi on that point pretty strongly. I want to move to Home Depot because this is a very different story, where they're not being optimistic for the full year. So while we have definitely seen a very strong business there, business trend fueled by home improvement, do you think that they're being overly pessimistic, on the flipside?

SUCHARITA KODALI: I think Home Depot is actually being pretty realistic. I think that what we saw in 2021 was just kind of all that, the energy and the demand that we had suppressed in 2020 was coming out in 2021. And now we have everything from supply chain issues to inflation issues. And Home Depot isn't necessarily expecting a bad year. They're just expecting that demand will probably stabilize. And I think that that is-- and it's still going to be figures that are higher than 2019, which you have to remember are some of the highest spending years on record.

So I think that overall, they're just expecting a little bit of flatlining of demand, which makes complete sense. But the market's reaction-- and this is one thing that I-- on the one hand, I see Brian's point of view that it's a little bit of a stupid reaction, but here's the other side, which is that Home Depot now has a valuation which is nearly as high as Walmart's.

So that's really the question. Is it just a correction because of a belief that maybe kind of the bulls are a little bit more bullish on Home Depot than they should have been in the first place, or is it really just investors taking some of their gains, recognizing that Home Depot may be a little richly valued for where it is? Or maybe Walmart's undervalued.

BRIAN SOZZI: So Sucharita, I have 15 seconds left. Is this the perfect environment for a Target and Walmart?

SUCHARITA KODALI: It is a good environment for the two of them because you do have-- I mean, they're going to do well no matter what. They do well in any economy. Where we're heading into is people may be trading down.

So the question is, how much of the merchandise do they really have? I think that that's who's going to continue to win in 2022, is who has good inventory and who has the right products that people want to purchase. And we're still seeing supply chain issues. And until that gets sorted out, we probably will see more concentration with some of these large multi-category retailers like Walmart and Target.

JULIE HYMAN: So good, but not perfect. You know Brian. He's always wanting the superlative. Sucharita, thanks so much for your perspective. Sucharita Kodali, Forrester Research retail analyst, have a great day. Thank--