Value, innovation are key to retailer growth: Goldman Sachs VP

The more earnings that come out from major retail chains, the clearer the picture for US consumers and the broader retail landscape becomes. Though with discount stores reporting consumer spending pullbacks — Dollar General (DG) and Dollar Tree (DLTR) — is there more turbulence ahead for the retail space?

Goldman Sachs Vice President Brooke Roach sits down with Yahoo Finance senior reporter Brooke DiPalma at Goldman Sachs' Global Retailing Conference to discuss the current landscape of the consumer, retailers, and more.

"One of the things that we've seen in retail the last couple of quarters is an acceleration of the bifurcating trends in retail between market share winners, such as off-price and other specific brands that have newness and innovation, that are comping quite positively," Roach says," and a tougher trend in department stores overall, where they've seen negative comp [comparable store sales] trends, they've seen a more cautious outlook on their consumer."

Roach stresses why "value" and "innovation" are key themes that pull companies ahead, specifically before the holiday season when promotions will be a driver of consumer traffic.

Roach elaborates on the difference between lower and middle-income earning consumers and why certain retail stores are pulling ahead of others:

"It's the middle-income consumer that's seeing a little bit lower growth this year in 2024. As we move into 2025, we actually think that that could get a little bit better across the board. But I think there's a more interesting trend behind what we're seeing between some of these retailers... The companies that are performing the best right now, that are gaining market share regardless of price point or value proposition, are doing it through innovation."

Roach and DiPalma reference brands such as Nordstrom (JWN), Macy's (M), Lululemon (LULU), Amer Sports (AS), SharkNinja (SN), and TJX Companies (TJX) to underline these points.

Catch more of Brooke DiPalma's coverage from the 31st Annual Goldman Sachs Global Retailing Conference.

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

This post was written by Nicholas Jacobino

Video Transcript

Goldman Sachs annual global retailing conference kicking off today and Yahoo Finance senior reporter Brooke Dipalma is there on the ground now over to you, Brooke.

Good afternoon, Josh.

That's why I'm sitting here at Goldman Sachs vice president, also a brook B Roach.

Thanks so much for joining us.

Rather, Thank you, of course.

So I want to kick off with some news today.

The Nordstrom family is looking to take the company private at $23 per share or $3.8 billion in cash.

Now we've seen other retailers get offers like a Macy's to go private Would love to understand.

Is this part of a broader deal environment that we're seeing?

And it Why exactly are these discussions happening right now?

It's a really good question, Brooke, And one of the things that we've seen in retail the last couple of quarters is an acceleration of the bifurcating trends in retail between market share winners such as off Price and other specific brands that have newness and innovation that are comping quite positively, and a tougher trend in department stores overall, where they've seen negative negative comp trends, they've seen a more cautious outlook on their consumer, and they've even had to trim their back half guidance for both comp and pro for comps and for their opportunities to grow.

And I think that's some of the reason why we're seeing some of these trend changes today.

I do want to take a step back and think Big picture.

It's so hard to describe the consumer in a few words.

But if you could, what is the state of the US consumer right now?

It's a good question.

I think what we see in the US consumer is somewhat of a choiceful consumer.

The consumer needs a reason to buy.

They're looking for value, but they do have discretionary cash income growth, and they do have money to spend.

It's just that retailers and brands need to give consumers a reason to open up their wallets Today.

Speaking of we spoke with Amer sports, particularly their brands, architects as well as Shark Ninja.

It seems like they're proving against that.

They have his willingness to spend not so much from Macy's.

What are we seeing in the difference between the low income consumer and the high income consumer?

Right now, you know what's interesting is our data within the Goldman Sachs consumer discretionary cash flow model would suggest that the high income consumer and the low income consumer are both seeing discretionary cash flow growth.

It's the middle income consumer that's seeing a little bit lower growth this year in 2024 as we move into 2025 we actually think that that could get a little bit better across the board.

But I think there's a more interesting trend behind what we're seeing between some of these retailers.

You mentioned Arar with AM Sports.

You mentioned what we're seeing with Shark Ninja.

The companies that are performing the best right now that are gaining market share regardless of Price Point or value proposition are doing it through innovation.

They're providing consumers value, not necessarily by competing on the lowest possible price.

Point right.

Shark Ninja doesn't compete in opening price points at all $400 Shark Ninja, Lux Cafe espresso machine.

Exactly.

And as we think about some of those new innovations that have come to market, Shark Ninja has seen very strong performance of these items, despite the higher price points in a choppy consumer backdrop because they're providing a new innovation that provides value to the consumer relative to the other opportunities that they could see in the marketplace.

You also cover TJ Maxx.

Curious.

Why are off price retailers doing well in this sort of environment?

One of the things that we think that the off price retailers do a very good job at is providing branded branded goods at a sharp value.

They have a treasure hunt offering where consumers can into the stores, and they can find the item in the category that they want because they still want to consume.

But they know that they don't have to overpay.

I think over the course of the last few years, we've seen off pricer develop stronger relationships with vendor partners, and you've seen higher propensity of better brands in those stores that are offered at great values.

And the consumer is reacting with higher levels of traffic driving, higher levels of transactions and greater market share growth.

For years we heard all about the Lululemon belt bag being such a big head, and then we heard in their recent quarter they missed on revenue.

It was the first time more than two years that that had happened.

Have we reached a peak in Lulu Lemon?

What do you expect moving forward for the company?

It's a really good question.

We think that Lulu Lemon is managing through some execution issues today.

They still have a very strong brand.

They have strong market share, but of the innovations that they have offered to the consumer recently, just haven't been quite as strong relative to the offers that they had previously.

Whether that was year to date, with some colour misses or not having your size in stock every time that the consumer comes to Lulu and they don't necessarily have that right colour, size and silhouette in style, in stock at that time is an opportunity for a missed conversion or a missed transaction.

And we do think that can sequentially improve their execution.

But we're waiting for more signs to see how quickly that might happen before becoming more constructive on the stock.

How are you thinking about the holiday season?

What sort of challenges are consumers up against and do you expect more promotions?

Very good question.

Inventories have been very well controlled in retail over the course of the last couple of quarters, and we didn't actually see that promotional of a holiday season relative to fears last year.

As we go through the holiday season, traffic and driving that consumer value will be very important to see how much more promotional it will be.

While we always expect a promotional season, I do think that it is very notable that there are fewer shopping days between Thanksgiving and Christmas this year.

We do have some noise with an election that is top of mind among consumers.

And so there will be some competition as retailers compete on price with opening price points.

But also competition as we think about the value and innovation that some of these retailers will use to drive market share, growth, value and innovation seem like a key strategy this holiday season.

Brooke Roach, Goldman Sachs vice president.

Thanks so much for joining us.

Thank you