Coresight Research CEO and Founder Deborah Weinswig joins Yahoo Finance Live to discuss the impact of inflation and higher rates on the health of retailers like Walmart and Home Depot, retail earnings, expansion, and the outlook for retailers.

Video Transcript

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- Well, if retailers the size of Walmart and Home Depot are issuing cautious forecasts for 2023, what does that imply for the health of retail more broadly? To help answer that question, we're joined by Deborah Weinswig, Coresight Research Founder and CEO. Deb, thanks so much for being here. So really interesting results that we got this morning, and not a lot of enthusiasm you could say for 2023. What are you hearing and what are you seeing?

DEBORAH WEINSWIG: It's very interesting. We at Corseight really focus on the macro environment and how that impacts these individual retailers. We did a survey about a week ago and 82.3% of consumers are aware of the inflation rate and higher prices.

And so, that definitely could be giving Home Depot and Walmart a bit of a pause in terms of thinking ahead to '23, or the rest of '23, as it relates to the health of the consumer. And the willingness for them to not only spend what they have, but dip into savings if that's necessary.

- What would you say about the health of these companies right now with regard to what their inventory positions are? What they're signaling around how they are being more nimble, especially around their product mix, given where consumers are taking some price in certain categories, versus others where they're being, as Julie mentioned, more choice-full as they were using that word with Walmart?

DEBORAH WEINSWIG: It's a great word. You know, I think that what we've seen coming out of the fourth quarter pretty much across the board was very surprising, and we started to get some indications of this as early as July from some of the apparel and footwear retailers just how aggressively they ordered for 4Q.

And if you kind of go back into the retailers' mindset, many of them were short of inventory in holiday of '21. And so, they really did overbuy. Probably a new demand forecasting system, or really to rethink that because what we saw kind of going into the back half of the year was very significant excess inventories.

I think it's impressive across the board that they work through them as well as they have. And in many cases, we've even heard a word I hadn't heard in a decade, which was "pack away," and that was putting away inventory for next holiday season because they had so much and they didn't really want to negatively impact either margins or top line.

- Well, I'm glad you mentioned margins because I want to pick up on that. In general, how do you think that retailers are managing the margin question right now between they're still, in many cases, paying more for the stuff that they're buying, right? But their consumers don't want to pay more. So how are they managing that line?

DEBORAH WEINSWIG: Well, and as you also referred to earlier in the show, we're also seeing them raise wages. And so, it is a very challenging balance right now. The positive is as we see more of a movement towards own brand, which consumers the growth in private label has honestly exceeded all expectations, that is a much higher margin business.

And so, we also have four multi-brand retailers, like a Walmart and Home Depot, right? This opportunity around retail media, which just hits the bottom line. So I think they can, right? It is a bit of an interesting kind of stew that they're brewing. But this idea that you can pay your hourly associates more, you can have more of your own brand, and you can be very aware and adjust in an inflationary environment, and you have this kind of gift with purchase, if you will, around retail media that can continue to drive your bottom line and really help your cash flows.

- Do you think consumers are going to stick with store brands even if the economy gets better and continue then to benefit these retailers?

DEBORAH WEINSWIG: You know, I think that what we saw during the height of the pandemic was a significant move into own brands, and that was really more kind of private label versus exclusive label. And that has not really retreated because I think there was this awareness. OK, I can actually keep my basket the same, slightly up in an inflationary environment if I am kind of-- they always call it a trade down. I don't really think-- I mean, in some cases, the quality is just as high, if not higher.

But traditional language would be you're trading down into private label, I think you're trading into maybe a product you haven't tried before. But I do think that the consumer is aware of that, and then realizes that they can eventually spend more. And as I mentioned, we are seeing still trips in positive territory and more units per visit, which would indicate that we are seeing they are looking at the overall basket price, putting in more private label, and then adding brands where there isn't a private label alternative, or they feel that the brand is kind of more important to them at this point. And there is this kind of, I think, awareness by the consumer. And there's a lot going on as it relates to the retailers driving awareness of those brands and the value.

- These are retailers that have been able to scale up, the ones that we've been tracking this morning. Walmart and, of course, the likes of Home Depot. That's meant that they have a larger employer headcount. That means that they have larger square footage that they operate. But for investors looking at how these companies would also weather a recession, which some have said is the most telegraphed recession in history, perhaps. When we hear the company allude to what that recession may look like, should investors still be more confident in the larger scaled-up operations relative to the rest of retail?

DEBORAH WEINSWIG: I would tell you it's probably the most bullish I've been on retail because, of course, retailers sell products. But what we're starting to see now, going back to this kind of bottom line, is they're also now monetizing their data. They are monetizing. They've got the whole kind of retail media play.

And as you referenced earlier in the show, right? This kind of idea that they're building these platforms now for ecommerce, and that allows them to sell all kinds of things, goods and services. So yes, their core business, I think, will be challenged in '23. There's no doubt about that.

And whether it's kind of paying associates more, dealing with inflation, and let's just call it a volatile macro environment. But there are all these additional-- and much of these kind of opportunities to monetize didn't exist a year ago, and that I think is something-- those are the really what to listen for this earnings season is what are the additional opportunities to drive revenues.

I mean, we're hearing, right? Sam's Club is opening 30 stores over the next few years. They haven't talked about store growth in years. So there is this idea of really gaining market share right now, and I think that may be what you're focusing on is you are going to see these large multi-brand retailers continue to focus on the market share gains because they need the eyeballs to monetize.

And that is a new game for them that they haven't played before, and they are finding, I would say, additional opportunities to do that, way to do that. A lot of that is technology-driven, but also just creativity. And we believe that we will see one of the best years when it comes to the bottom line for retailers in '23.

- Just really quickly to follow on one aspect of that. Are we going to see most retailers have to raise wages like Home Depot did today?

DEBORAH WEINSWIG: I think that we are going to see-- there is still a challenge around having enough hourly associates, and we are continuing to see wages as a way to attract. Also, many of the other things that retailers are doing. But this is-- if I were to list some of the top concerns, having a decreasing turnover in the workforce, being able to hire, so being a desired place to be employed, and sustainability. These are things that these retailers are very focused on.

And the reason sustainability is so important is it actually does attract hourly workers. So I would say that the ability to not only hire, retain and train, and have these associates also kind of graduate into high-- into management roles, et cetera. This is supply chain, hourly workers, and sustainability are three of the top things on retailers' minds in terms of some of the challenges they face ahead.

And then this opportunity around monetising some of those eyeballs, that is where there is a lot ahead for them. But this is a challenging year, and retail is going to be volatile, and I think these management teams that are, right now, I think being a little more cautious and conservative, I think it will serve them well through the year.

- Timely analysis and research and insights. Thanks so much for taking the time here this morning. Deborah Weinswig, Coresight Reserach Founder and CEO. We appreciate it.

DEBORAH WEINSWIG: Thanks so much. Bye-bye.