Lower-income consumers are 'very stretched': Goldman Sachs

[Music] welcome back to Yahoo finance live I'm Brook to joining you from the Goldman Sachs Global retailing conference I'm joined by Goldman Sachs us retail analyst Kate McShan Kate thanks so much for joining us thanks for having me in a few words break down what we're seeing amongst the US consumer right now the words we actually heard were steady choiceful um value seeking that's the consumer and do you think um spending will pick up in the later half of 2024 and into 2025 what are some of the challenges that consumers are still facing well I

think the election is has to be noted as at least at a minimum a distraction um we've seen that in the past influence sales um I think also there's five less shopping days this year between Thanksgiving being a little bit later Christmas is always on the 25th but um there's five less shopping days so those are two actually big challenges the retailers face um versus maybe last holiday season what are you hearing among consumers ahead of the US election about potential tariffs so there is one candidate that prefers tariffs more than another uh if there

were to be tariffs I think it would be inflationary uh for for for most retailers and so in the past what we've seen from tariffs is that prices go up are you expecting retailers to increase their prices what are you hearing so no one will really commit because it's only a scenario for right now but but I think if the tariffs were any indication from 2018 2019 we did see prices go up the last time I would imagine we'd see some price increase this time as well I want to hit on what we're hearing from

Big Box retailers we heard from Walmart do really well with their low price strategy and then following targets results where they lowered prices on 5,000 Goods they seem to do well what is the difference right now between value and the actual price of things and what are values or sorry what are consumers favoring right now is it that value play or is it the actual cost of goods yeah it's a great question I think there is a lot of emphasis on value no matter what strata you are in terms of demographic um but where I

do think its price is the lower income consumer because frankly prices are still high when you look at where prices were just a couple of years ago there's a compounding effect to inflation and those lower income consumers that don't have a lot of dollars to play with are still very stretched so I think they're looking more for Price versus is the value we did hear from Dollar General Dollar Tree and it was disappointing results yes shouldn't dollar stores do well in this sort of environment why are we seeing this yes it's it's a little hard

to say they should be doing well the way Dollar General explained it to us is that they do cater to a much lower income consumer $30,000 and Below 60% of their business that consumer is still shopping with them but they're very stretched their three weakest quarters in the I'm sorry months in the quarter were the last week of each month which shows that the consumer doesn't have enough money to keep purchasing through the end of the month and so that was a big change from what they saw in the first quarter and they're not yet

seeing that middle inome consumer trade down or spend more with them and they did introduce that multi-tier option do you think that that's not necessarily working in their favor the way that they anticipated well they still do have a dollar price point it's about 20% of their goods that they offer is at a dollar so they still convey quite a bit of again value um and that dollar price point is important to their lower income consumer looking out to the holiday what sort of environment are we seeing when it comes to Promotions and and value

offerings can we expect more than in years past I think what most companies told us over the second quarter and today is that we should maybe expect a little bit more versus last year it's going to depend on the retail tailor it's going to depend on the category um but we do think again the consumer is looking for again value promotions and we could see a little bit more year-over-year I do want to quickly hit on the Home Improvement retailer it seems like lots is waiting on the potential of an interest rate cut what are

you hearing from Home Depot from lows that indicates what the back half of the Year could look like yes I think housing turnover has been a real headwind uh for both Home Depot and Lowe's and until you do see some unlock and interest rates and mortgage rates come down that housing turnover number is going to continue to be soft um and housing turnover isn't necessarily what drives sales at Home Depot and lows it's actually home price appreciation and private fixed residential investment but housing turnover is so depressed um that until that unlocks will you see

any kind of improvement at Home Depot and lows taking a setep back what are three of the biggest challenges that consumers face right now heading in not only taking into consideration the US election the holidays but really looking into 2025 what do you think will still remain sticky then well I think the good news is is that our Outlook is that the labor market is still very strong and you still are seeing wage growth so we do expect the consumer to still be employed and still be making more money I think also in addition to

that you do have costs coming off a little bit and if there were to be interest rates Cuts uh you would have less financing obligations as well so we just put out a discretionary cash flow analysis that actually shows the consumer should have more cash in 2025 than they did in 24 but potential headwinds of course is the stickiness of infl and the higher prices which I do think continues to stretch people's wallet Kate McShan us retail analyst for Goldman Sachs thank you so much for joining us thank you for having me