Consumers are paying for experiences over goods: Strategist

Retail earnings reports are painting a mixed picture of consumer spending, with results from Kohl's (KSS) and Abercrombie & Fitch (ANF) pointing to ongoing market uncertainties. To shed light on these developments and their broader market implications, HSBC Global chief investment officer Willem Sels joins Catalysts.

Sels emphasizes that success in the retail sector largely depends on companies' "positioning" within the industry. He highlights a significant bifurcation in consumer behavior:

"At the top-end, clearly some consumers are benefiting from a healthy housing sector and healthy stock market," Sels explains. However, bottom-end consumers, although inflation has fallen, are still grappling with high prices— "so people feel they're still not better off."

This divide is creating distinct winners and losers in the retail space. Sels notes that companies operating in sectors such as leisure, travel, hospitality, and entertainment are "typically in a better environment" compared to those in the value segment, where "there is fierce competition."

"People are shifting their share of consumption more and more towards experiences rather than accumulating goods," Sels told Yahoo Finance.

Ultimately, Sels says, the space is "very much a stock picker's market, where people need to differentiate."

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Angel Smith

Video Transcript

Another key driver for markets today.

Earnings reports from Coal and Abercrombie and Fitch generating mixed reaction from investors, leaders of both companies pointing to the more challenging and uncertain environment as shoppers pull back on discretionary spending.

So what impact can we expect this to have on the broader market here?

To join us?

We will sell.

He's the global chief investment officer for private banking and wealth management over at ABC.

Well, thanks so much for joining us.

I want to get to your downgrade of the consumer discretionary sector in just a second.

But I want to start on the market action that we are seeing for some of these retailers today.

Name like a Crombie and Fitch was down over 14% the last time I was able to take a look at it.

Is that an icra story, or is it a story of consumer weakness that could potentially lead to further pressure that could bring down the entire market?

It's about positioning.

I think of companies in the sector and as well.

So what we are seeing in the on the consumer side is not necessarily that consumption is falling, but that you have more of a bifurcation what we call a K shaped consumer.

So at the top end, clearly, some consumers are benefiting from the healthy housing sector, a healthy stock market where else, although inflation is falling, prices have not yet fallen, so people feel they are still not better off.

So it's clearly a question as to where you are positioned.

So if you are a company in the leisure space, in the hotel space, in travel, in entertainment, those kinds of things, typically you are in a better environment than if you are in, you know, in the lower end, where competition is fierce, you talk earlier on the show about value.

You know, there's a fierce competition in terms of having the rise price point so very much a stock pickers market where people need to differentiate.

And so, from what you're hearing from some very specific or specialty retailers, as of right now, what they're having to do just to move through inventory, some of the deep discounting that they're talking about some of the promotional price that may persist even from this point forward, even on things such as footwear.

What is that signal to you as we're moving through a period of the summer months where consumers are known to cyclicality wise, prioritise more of that services spending versus goods.

And then on top of that, we're about to go into a very highly promotional period.

What is that pass through and that read through look like then for some of the specialty retail.

So as you are saying from a consumer perspective, people feel very differently when you are looking at consumer surveys and different surveys tell you different things.

Different types of consumers feel very different about their purchasing power, the state of the economy and so on.

And as you are saying as well.

And that's why I mentioned leisure, hotel business and so on travel and entertainment because people are shifting, you know their you know, the share of consumption more and more, towards towards experiences rather than accumulating goods.

So it's all about finding those companies that are that have the pricing power and that are positioned in the right space to tailor to this more to the entertainment space, more to the services space and more to the higher end