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Market strategist details the twin ‘logjams’ in the supply chain and labor market

National Chief Market Strategist Art Hogan joins Yahoo Finance Live to look at what to expect from major retailers and department stores during the supply chain crunch and labor shortages concurrent with sales booms.

Video Transcript

- Now, Jared, let's bring in another voice into the conversation. We've got Art Hogan, who's national chief market strategist. Art, always good to have you on the show. Give me a sense of what you've seen out of these big box retailers. What do you like?

ART HOGAN: You know, what's amazing to me is that, we're living in an environment right now where aggregate demand is clearly outpacing aggregate supply, but that aggregate supply issue has been managed very well in most of the reports that we've seen. So TJX was a great example of that. I imagine Target is going to be able to do the same, Walmart in a similar fashion.

But I think that when we think about the things that we're most concerned about, the biggest elephant in the room had been, hey, there's not going to be anything on the shelves. And that's clearly not proving to be true. What's more important and should be more important to us is that there's a lot of demand for goods and certainly for services. And I think that bodes well for the fourth quarter and well into next year.

And what I mean by that is, when we think about aggregate demand outpacing aggregate supply, you have to think about the fact that demand is likely to be delayed for some of those things that we can't get right now. And that drags that demand into 2022. And I think that's certainly going to elongate this economic recovery. So I've been very impressed with both the retail sales that we saw yesterday and across the board with a lot of these big box retailers that are coming out and talking about foot traffic and ticket size, and all of the results that show this consumers in very good shape, which contradicts what we heard last week in the consumer confidence numbers.

- Yeah, and those consumer confidence numbers can change on a dime. I do want to ask you about the labor market here. One of the trends that we've been tracking throughout the entire earnings season so far, and no different with a lot of these big box retailers, is increase wage costs labor pressure there. And with some of them, it's affecting their margins. Others are able to price it and pass it on to the consumer. Just wondering what your take on the latest information and tidbits we've got from these earnings reports say about the labor market.

ART HOGAN: Yeah, I think that's a great-- that's a great point. When we think about supply chain problems, part of that supply chain problem is getting enough people back into the workforce, right? And I think that that's the other piece of the puzzle that we put together and say, when are we getting back to a more level place. And I think a lot of the things that are happening right now in the here and now point to more people joining the labor force, getting back in the labor force, kids getting back in school in-person for the first time, health care-- or child care providers opening so that childcare providers can actually get back into the workforce.

Certainly, the uptake of both vaccines for adults and boosters for adults, but vaccines for kids probably takes away some of that hesitancy to get back in the workplace. So I clearly think this is-- the logjam of people getting back in the workforce is likely to start to clear up at the same time that the logjams in the supply chains start to clear out, end of this quarter, into the first half of next year. And I think a lot of that wage price pressure probably plateaus a bit in the first half of next year, which is likely a good thing. So when we think about the supply chain, we think about it both for goods, but also for the people that need to put these things together and get them out to the shelves.

- Art, when you talk about wage increases, I mean, that's just one of many price pressures that these companies are facing. What we've learned over the last few days, at least, is that these big box names, like a Target, like a Walmart, have the cushion to be able to withstand some of those price pressures, not necessarily have to pass it down to consumers. I wonder if there's a name out there in terms of retailers that you think is especially positioned well. And you know, going back to this narrative that we've seen in retail over the pandemic, this divide between the big players and then sort of the small and medium ones, are we going to continue to see that divide even widen further?

ART HOGAN: Yeah, it's such a great point. And it really comes down to the haves and have-nots, right? So you can pass along prices if you are the brand leader or the category killer, right? So we think about things like Nike and Lululemon, et cetera. I think one of the things that has been interesting in this week of reports when it comes to who benefits from what's going on in the supply chain disruptions, it's those companies that have actually managed their supply chains very well, right?

And then it's the off-price folks. Like TJ Maxx is a great example of this. When things get delayed, they all all of a sudden have a bolus of inventory because the department stores are no longer going to take it because it's a week or two out of date for what they need, right? So I think that the opportunity set for the raw stores and the TJ Maxx's of the world, the off-pricers, sits out there as well.

So to your point, you know, who are the haves and the have-nots? Efficient management of your inventories clearly has been key to this. And the second is, don't forget that, you know, the inventory-- lacking in inventory turns into an inventory glut for that that channel that is off-price. And I think we saw that in TJ's results today.

- And Art, we're getting Macy's tomorrow. We're also getting Kohl's. So we've got a department store and quasi department store, maybe. I'm just wondering, you know, Macy's has had been counted out by many people. And they just rose to a fresh, I believe, almost two-year high yesterday, the highest level since before the pandemic. Have some of these retailers been able to transform themselves throughout the pandemic? And what do you see their path going forward?

ART HOGAN: Yeah, that's such a tricky question, right? So you know, first we wrote off the mall entirely. And then we see the SPG-- the SPGs of the world actually doing very well. And what was that dynamic that drove that? So many people moved to the suburbs during the pandemic and that was their center of activity. So I think when we think about the department stores, you have to think about how much money has been put into right-sizing.

And Macy's is a great example of that. You know, how many stores have they closed over the course of the last two years? Are they down to the level where they should be or are they still over-stored? Five years ago, we were significantly in excess of the square footage we needed in retail space. I think that's come down to a more manageable level. We're still probably over-stored, but nowhere close to where we were two to five years ago.

I think Macy's is a great example of a company that's really trying to get to the place where they have the right number, and being in the right places. And I think we'll find a whole lot more about that tomorrow. So I think that's sort of the department stores. It seems like it's been a decade that we've been talking about the death of the department store.

- [LAUGHS]

ART HOGAN: This may be the year that, perhaps, that we'll find out that they were able to reinvent themselves a bit and get down to the right size.

- Or that they just got bit by a zombie. Always great insights from you, Art Hogan, national chief market strategist.