Gerald Storch — former CEO of Toys R Us and Hudson's Bay and current CEO of Storch Advisors — joins Yahoo Finance Live to discuss the state of the retail sector and how big names like Walmart and Macy's are faring.
SEANA SMITH: Macy's surprising the street and bucking the downshift in consumer spending. The retail giant posting strong sales growth for its first quarter, also raising guidance for the year. And that's a sharp turnaround from what we heard just last week from some of those big names, like Walmart, Target, and Home Depot.
So let's dig in to some of the trends at play here. And for that, we have Gerry Storch. He's the CEO of Storch Advisors, also the former CEO of Toys R' US and Hudson's Bay. Gerry, it's great to see you. Thanks so much for joining us.
GERALD STORCH: My pleasure.
SEANA SMITH: So I think a lot of people out there are just trying to figure out what exactly is going on with retail when, in the same quarter, you have names like Target, Home Depot, Walmart missing by a wide margin. And then you have names like Macy's, Nordstrom, Dollar General, Dollar Tree actually doing pretty well. What's your read just on what we're seeing within the sector?
GERALD STORCH: Well, I think you have to look at a little longer frame than what happened this quarter versus expectations. The real question is who won the pandemic, not what happened in January, February, or March of this year.
When you take a look at that, you see a very different story than what we're hearing. If you take a look at Macy's, it's nice to see they're doing well, but they're still losing. And they're losing big time over the long term.
The sales they reported this quarter are still smaller than the sales they reported in the first quarter of 2019 before the pandemic. So they certainly did better than they did in the dregs of the pandemic, but they aren't doing well in any absolute terms. They're continuing to lose massive market share.
In fact, you could have bought Macy's stock in the 1990s for the same price that you would buy it today, even with this increase. Which means if you bought it back then and held it, you would have gained nothing.
Meanwhile, take a look at Walmart, Target. Walmart, sales in this first quarter were 20% higher than they were in the first quarter of 2019. Target's were 40% higher, 40%, than they were in their first quarter of 2019. Meanwhile, Amazon was 80% higher in product sales. And if you included Amazon Web Services, it was more than double what they did just three years ago. So those are the real winners.
Now, what's going to happen the rest of the year? Gosh, what's going to happen today with Costco? Kind of hard to guess, quarter to quarter, exactly how it's going to come out. But I'll bet you, before too long, underlying trends will reassert themselves. The winners for the rest of the year, the winners next year will be the winners over the long term, which again, is Target, Walmart, Costco, Home Depot, Lowe's, and Amazon, TJ Maxx, companies like that.
It's not going to be the companies that had their best years in the 1990s, I'll tell you. That was the last century.
DAVE BRIGGS: And some interesting winners today, Dollar Tree and Dollar General both popping, Dollar General up 14%, Dollar Tree up 20%. On the complete opposite end of the spectrum, Nordstrom has had a very good couple of days. When you look at trends and patterns among the winners and losers, what defines a winner? What defines a loser right now?
GERALD STORCH: Well, again, when I use those phrases, I'm looking for people whose best days are ahead of them not behind them. In the case of the dollar stores, that's a very important concept for the future and has been growing very rapidly.
Dollar General has been a star performer for many years. And it's no surprise at all that they would do well now. In fact, it's no surprise that if the economy gets worse that they would do well, because they're value-based retailer, and retailers like Dollar General, like Dollar Tree, and like Walmart, by the way, do very well compared to others in down economies.
So again, great, very well-positioned. Not a surprise at all, frankly, that they would do well. And again, I just encourage everyone not to look at just this quarter's results versus expectations, but rather look at the trends over a longer period of time and whether these companies are actually making good money or not on the bottom line.
RACHELLE AKUFFO: Gerry, Rachelle here. In terms of inventories and the amount that we're still seeing that a lot of these retailers are holding, at what point do you think that's going to start perhaps eating into some of their profits going down the line, especially as consumers tighten their belts and focus more on services?
GERALD STORCH: Well, great question. And it's already happening. Clearly, we did not have stellar management performance by companies like Target or Walmart during this quarter. They got suckered in. Everyone's so worried that the supply chain was broken, they weren't going to able to get products in, that what they did was order way too much.
And they also thought the trends that were existing at the height of the pandemic would continue, trends toward the focus on home, for example, as opposed to external activities. And they got way too much seasonal product, patio furniture, things that they cannot get rid of easily. So they are way over-inventory.
That's going to take them a few quarters to work out, which is why, again, I think it's the end of the year, when you get to Christmas, where you're going to see the strength of these big mega-retailers again. And when we get to next year, it's going to be an all-out race.
Again, I just want you to be careful about mall-based apparel companies and the department stores. I don't think, when you get to next year, they're going to be able to lap even what they're doing now, much less what they were doing before the pandemic, whereas TJ Maxx had a stellar quarter. They did very, very well.
And they have all the same pressures everyone else has. They're a little bit unique. But they're are long-term winner. And they're going to keep doing well for a very long. They're spectacular.
SEANA SMITH: So Gerry, there's a lot of headwinds out there right now for some of these big retailers, or retailers, no matter what size you are with inflation, the lockdowns in China, and then of course, there's talk about the labor protests going on over at the Port of LA.
You were an executive of a number of large retailers. As an executive at this time, I guess, how would you be thinking about when you're trying to prioritize certain divisions, certain sectors of your business. Where is there the most opportunity today?
GERALD STORCH: Well, clearly, growth on the internet is number one. You were talking about channels. And as an aside, I think Amazon was the first to report, because they don't report on a typical retail calendar. They report more on a normal annual calendar. So they report a month before everyone else.
Remember, everyone bashed them and said, what a bunch of fools. They can't even manage their expenses. What a terrible mess, right?
And then when we saw Walmart and Target, Amazon all looks pretty good right now, don't they? The way they handled wasn't-- we're all being biased by the weak these companies report. We're all talking about the ones who report today.
So the first thing is the internet is where the growth is still going to be as we look to the future. People have come out of their homes now. And they're shopping in stores more. And so if you look at a one-year trend, it looks like, oh, bricks and mortar is growing again. That's a bunch of nonsense, a bunch of hooey. The internet grew so rapidly during the pandemic, of course, there has to be a little give-back.
I used to say it's three years growth in two. But then you have to give some of that back as you go forward. So that's the first thing is don't lose sight of the long-term strategic imperative, to get the internet business going very strongly.
In terms of sectors, you have to be responsive to consumer trends. It's very clear that last year's emphasis on home and home categories is not the emphasis for the future and that you have to focus more on the fact that we'll be outside the home. And we'll need wear to work apparel. And they're going to want to go out to have fun apparel. And they're going to be traveling more.
Everyone knows that. Everyone says it. They're all right. That's what's going to happen. And those are the categories you need to focus on, not the pandemic, home-based categories.
DAVE BRIGGS: Gerry, you mentioned brick and mortar and Amazon, which gets us to Amazon Style, their first ever brick and mortar retail clothing store, which opened in California, the LA area yesterday, aiming for a real frictionless shopping experience. How does their technology set them apart? And how much of a disruptor do you think this will be in the industry?
GERALD STORCH: Well, I admire Amazon tremendously. I've partnered with Jeff Bezos back when I was at Target. We launched on their website with Target.com. I think they're an amazingly innovative company. And I would put this in that category, that they're experimenting, and they're learning.
Most of the technologies in the store are not new to the extent that, you go to any retail trade show, and you will see a panoply of vendors offering these technologies, almost every one that has been mentioned or that's associated in the store. Regular bricks and mortar retailers can, and some of them do, experiment with and have in their stores.
I think one thing, Amazon is very good at integrating them all and also bringing some of the Amazon ecosphere into that process, maybe being able to check out a little easier, that kind of a thing. But at the end of the day, I think this is more of the category of experiment not disruption. Amazon wants to be better in fashion, but this is not how they're going to do it.
A 30,000-square foot apparel store selling Levi's and Champion, it comes down to, are those the products you really want to buy? And then meanwhile, it's a very labor-intensive model they've actually built, which is shocking to me, given that they have this high use of technology. They brag about things like you can scan the QR code on the garment and then go to the dressing room. And someone will bring them to you. Well, that's a human being. That's enormously expensive.
So I don't think this is retail of the future, to be honest with you. Amazon has done this before. As you know, they had stores selling their gadgets which have closed. I would put this in that category.
What they really should be focusing on is more food stores. They're starting to do that. But when they bought Whole Foods, they bought the wrong grocer. They should have bought Kroger or somebody that could cover the country. Whole Foods does not cover the country. They need broader grocery distribution, or they'll never catch up with Walmart in grocery, which is the biggest category of them all.
RACHELLE AKUFFO: There you have it. A big thank-you to our guest, Gerry Storch, Storch Advisors CEO, former Toys R' US CEO, and former Hudson's Bay CEO. Thank you so much.