‘There is a massive consolidation of power taking place in retail’: Storch Advisors CEO

Retail sales have remained strong as consumers are proving that they have an appetite to spend. Gerald Storch, Storch Advisors CEO and former Toys ‘R’ Us Chairman & CEO, joins The Final Round to discuss his thoughts and what the retail sales data says about the U.S.’ economic recovery.

Video Transcript

SEANA SMITH: Welcome back to “The Final Round.” We want to bring back in Gerald Storch, the CEO of Storch Advisors, also the former CEO of Toys R’ US. And Gerald, we were just talking about the resilient consumer, what we’ve seen and what you expect here for the holiday season. We’ve spoken in a number of times in the past just about how consumers are shifting, when, where, and how they shop. What do you expect this breakdown to be this holiday season?

GERALD STORCH: I don’t think we’re going to see much change. There was a lot of talk about how apparel numbers were better this month than last month. And they were, in fact, you know, improved month over month. But they’re still way down year over year. Same thing with department store sales.

And I just don’t think that’s where people’s heads are right now. They’re not spending to dress up and go out and, you know, look fancy. They’re spending on their homes. We saw a 19% increase year over year in sales and home improvement stores. That is spectacular. I don’t think we’ve ever seen an increase like that.

So consumers are spending on their homes. They’re clearly spending on electronics. I don’t know. I tried to buy the new Apple, you know, the iPhone 12 this morning. It took me forever just to get in to be able to buy it for $1,300, you know?

So they’re going to spend on electronics. They’re going to spend on their home. They’re going to keep spending at Target and Walmart and Costco, where they can get everything in one place. They’re going to keep spending on groceries and necessities. They will not be spending on clothing and department stores. And they’re going to spend a lot of this money online.

DAN ROBERTS: Gerald, Dan Roberts here. You mentioned a lot of names there that you rattled off that we have watched closely that have seen huge e-commerce gains. And before the break, you were saying you expect to see holiday sales bump for toys, thanks to online. I mean, Walmart, Target– you mentioned electronics– Best Buy. All of these names, Dick’s Sporting Goods, we’ve talked about them to death in the last few months, because they’ve seen massive gains in their e-commerce.

As a result, though, and especially as the former Toys ‘R’ US CEO, I’m left wondering whether independent one-off stores that are not big chains and don’t have big digital presences are in big, big trouble. I mean, independent toy stores that just have one location and had been there a while and are beloved by their neighborhoods, are they–

GERALD STORCH: Great question, Dan. I think you’re 100% right. There is a massive consolidation of power taking place in retail. People are asking, well, can these stocks that have gone way up, you know, Target, Walmart, Costco, Home Depot, Dollar General, can they keep going? It’s going to keep going.

They’re consolidating their market share. They’re gaining share every day. And of course, Amazon’s got to be included in that. It’s the mom and pops that are losing. Many of them had to shut during the pandemic because they were viewed as nonessential retailers, so they lost a lot of money. They’re in very bad shape, and they’re shuttering.

So it’s absolutely true what you say. Power is consolidating. Shares is consolidating in retailing. The bigger are getting bigger. And frankly, I’m going to bet more of the same. It’s not going to change.

SEANA SMITH: Gerald, I mean, so mom and pops obviously at a disadvantage. But it’s not just the smaller stores. We’ve seen a number of chains file for bankruptcy. Just where are we in the bankruptcy picture right now? Is it going to go from bad to worse next year, or have we seen the worst of it?

GERALD STORCH: It’s going to go from bad to bad. I don’t know if it’s worse. It’s been pretty darn bad. But keep in mind, most of the companies that have filed for bankruptcy– I know you have a chart up there. So one thing, clothing. There are apparel retailers and department stores, and it’s not going to get better anytime soon.

You know, apparel has been on a secular decline for a decade, losing share to hard line, some of the categories we discussed earlier. That is not going to change. But until people return to the office, until there are events where you need to get dressed up, apparel will continue to decline. You can wear the same sport coat every day on Google, on Teams, or on Zoom. No one would even know, you know.

And people are not spending their money there. They’re living where they are. We’re all at home. What do you need at home? You need a new refrigerator. You need, you know– you need that air fryer, you know? You need a great electronics get-up, you know? You need a great cell phone. That’s where people are going to spend their money, and it’s not going to change anytime soon. And frankly, I think we’ve seen kind of a long-term shift as fewer people actually return to work downtown.

SEANA SMITH: Yeah, certainly something to keep an eye on and certainly having a massive impact on a lot of these huge retail chains. All right, Gerald Storch, always great to have you. We’ll talk to you soon. Thanks so much for taking the time to join us.

GERALD STORCH: Yep, my pleasure.

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