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Retail sales show ‘pandemic is still on consumers' minds,’ analyst says

Refinitiv Director of Consumer Research Jharonne Martis joins Yahoo Finance Live to discuss the rise in retail sales for the month of January.

Video Transcript

JULIE HYMAN: Let's get more insight into this number right now. Jharonne Martis is joining us now, Refinitiv director of consumer research. Jharonne, good morning. It's good to see you. What do you make of this number?

JHARONNE MARTIS: Good morning. It's good to be here.

JULIE HYMAN: Especially after the big disappointment that we had in December, what do you make of this January number?

JHARONNE MARTIS: It's definitely a big surprise, especially when you take into consideration the lower December numbers, and on top of that, the fact that the market was expecting that the Omicron the spike in Omicron would have muted a lot of those sales. Now, what's interesting is that when you look at the numbers year-over-year, it paints a whole different picture. It's actually lower than the previous year, the sales are.

But, as you know, autos did very well in January. Online sales was the big winner here. And that is key, because it shows us that the pandemic is still on consumers' minds. But the spike in Omicron actually did push those consumers to gravitate online and make those purchases. And when you combine that with the fact that sales at bars and restaurants were actually below 1%, it does tell you that the consumer is holding back on that reopening and going out and eating out, but instead is, again, going back to those pandemic ways of shopping online.

BRIAN SOZZI: Jharonne, is this report likely to be the best one we are going to get this year? And I bring that up because inflationary pressures, they are spreading. They're getting worse. And at some point, you're likely to see consumers start to trade down to cheaper options.

JHARONNE MARTIS: Absolutely. And that's actually what we see during these economic times in the past. We do see that consumers start to trade down. So instead of going and buying shoes for their kids at the department stores, they might actually go to Target or Walmart.

Now, what's going to be very telling tomorrow is the Walmart numbers, right, when they report, because that's going to tell us if there's actually a consumer pushback, if consumers are holding back because of this inflationary higher prices, or if instead we're starting to see that more consumers, like Walmart, more consumers are actually trading down, meaning that Walmart and Target are gaining more new consumers, that instead of spending at the department stores are now gravitating to the discounters as they're trading down. So that's going to be very telling to tell us whether the consumer is holding back on spending, is going to resist a little bit of this inflationary prices, or they're going to trade down or pull back.

Now, it's very important to know that even though the retailers will be reporting earnings for the fourth quarter ending in January, we're looking for that glimpse of what's happening already in February. When we look at the Refinitiv estimates, it does show us that we're expected to see double-digit growth of earnings for the fourth quarter. But then that's expected to drop to single digits into the first quarter. So the Refinitiv data definitely shows a slowdown in consumer spending for the first quarter of this year.

BRIAN SOZZI: If this is a perfect environment, Jharonne, for the discounters, a Walmart or Target, Costco, as households look to save money anywhere they can in an inflationary environment, who loses?

JHARONNE MARTIS: The middle. So the retailers right now that we're expected to see hurting the most are the mall stores. So consumers will still buy groceries. They will still buy those staples. Where they're going to hold back a little bit is on those discretionary items.

Now, as you mentioned before, gift cards do have a later effect. Those gift cards that consumers received for the holiday season, they might be redeeming them still now, which is why we might have seen January sales also come in very strong. But the retailers are expected to perform the weakest are those small stores. In fact, it's mainly because of the supply issues, too. Those are eating a lot of the cost right now for the retailers.

Even the retailers that are doing well, they're not immune to the supply chain issues. But there are some retailers that are navigating this better than others. And the mall stores are the ones, like Chico's, GAP, Urban Outfitters. Those are expected to be hurting the most because of the supply chain issues. Combine that with inflation, their same-store sales are expected to come in weak.

JULIE HYMAN: Yeah, that makes sense, sort of the middle-of-the-road retailers, people who are not being traded down to and people who are not as immune, perhaps, as luxury retailers. Jharonne Martis, thank you so much for your perspective this morning. Really helpful as we try to make sense of these--

JHARONNE MARTIS: Thank you for having me.

JULIE HYMAN: --retail numbers. Refinitiv director of consumer research, thank you.