Transcript:Caroline WoodsJoining me now is Jharonne Martis, Director of Consumer Research at LSEG. Jharrone, always good to have you. Thanks for joining me here at the Desk.

Jharonne MartisThanks for having me.

Caroline WoodsAll right. So the retail earnings continue to come in. Consumer confidence keeps falling but consumers keep spending and they’re spending big. What are we missing here. Explain this disconnect to us.

Jharonne MartisWell affordability is the headline theme this year. And so what we’re seeing is that for the most part in 2025, the amount of merchandise on sale, which is called this penetration, has been the lowest it’s been even since pre-pandemic levels. Now, what happened is that in the month of November, we saw a spike in the amount of merchandise.

Jharonne MartisAnd as a result, that definitely lured in the shoppers to spend more than expected because of those promotions that they hadn’t seen as much in the previous months. This, like I discovered in a collaboration with Centric Market Intelligence. Now, having said that, when we look at the holiday season, Elsa is forecasting about a 2.5% increase compared to a year ago in sales for the holiday season, which is below the 3 to 5% range that we’ve seen over the past couple of years.

Caroline WoodsSo sales are expected to grow, but less than previously expected. Our sales growing because of inflation, because things are getting more expensive or because people are actually buying more?

Jharonne MartisBoth. So we’re seeing that the consumer is, spending right now that they did that for the month of November during the holiday season. They’re being very strategic when they’re opening up their wallets like during times like Prime Week, where not only Amazon but other competitors also offer discounts. They’re doing a lot of price comparisons on their phone.

Jharonne MartisWe’re dealing with a very discerning consumer that is constantly price comparing to see how they can get the best value for their money. On the same time, we’re seeing that retailers are warning us not to expect too much from them for the holiday season. They’re actually we’ve actually received more negative guidance than positive. Going into the fourth quarter, as consumers, as the retailers continue to be a little bit cautionary with how things are changing with tariff policies and also demand driven by the consumer, since they are so, value oriented right now.

Caroline WoodsIs that because can retailers know that the best of the sales have already happened and they won’t be luring consumers in with additional sales?

Jharonne MartisSo we still have a couple of days before a couple of weeks before Christmas. And one thing we know about the U.S. consumer is they love to procrastinate. And so retailers still have an opportunity to continue to lure those shoppers in, but they have to be strategic on how they do, those discounts. And we’re seeing that one particular retailer that stands out is Dillard’s.

Jharonne MartisAccording to our star My data, they are likely to beat earnings and post a positive surprise. And the reason why Dillard’s is so good is because they have a loyal customer following in comparison with the other department stores they have on trend merchandise that resonates well. But on top of that, they do timely promotions, just enough to alert those shoppers in, but not hurt gross margins.

Jharonne MartisIn general, the retailers are becoming more, strategic when it comes to pricing discipline and also inventory management. And this is mainly because of how they wanted to affect demand, like they still want to attract shoppers, they want to stay relevant, but they are being more conservative when it comes to their margins.

Caroline WoodsOkay. So let’s talk about what consumers actually are spending money on. We know groceries and essentials because we have to spend money on that. But in terms of discretionary purchases, what are consumers buying and where are they going.

Jharonne MartisSo we’re analysts polled by tech have been raising earnings estimates for especially the discounters like Costco, Walmart and off price retailers like TJX. Are expected to be biggest winners during this, economic climate. Still, having said that, the retailers with the highest earnings projected growth rates, those are the leisure products sector, especially Hasbro and Mattel, because toys are always a popular gift during the holiday season and also the hotels, restaurant and leisure sector.

Jharonne MartisAnd this is because consumers still gravitate towards experiences over things. And mainly the high end consumer is the one that is booking all of those luxury travels, which is also helping the sector.

Caroline WoodsIn terms of the negative guidance that we’ve been seeing, which retailers are worst positions heading into really this key? I guess we just had the key Black Friday to Cyber Monday period, but heading into the holidays and which are best positioned outside of the Amazons and Walmarts that we know are always the winners, right?

Jharonne MartisIt’s interesting because the negative guidance that we’re receiving is coming across all the sectors. Even though Macy’s, for example, they smashed expectations yesterday, they still were very cautionary when it came to their holiday outlook. And again, it’s because of the climate and the main theme that we’ve seen around this year, affordability. You never know if there’s going to be a new tariff policy.

Jharonne MartisAnd also, you know how if the product that the consumer is looking for will be have a bigger discount elsewhere. So as a result, we’re seeing that in general all of the guidance is coming across the sectors. Equally. There’s not one that stands out more than the other. But having said that, the apparel sector is the one is one of the weakest ones.

Jharonne MartisAnd we’re seeing that discretionary spending in general, clothing, target is one of the lowest because it, it’s losing a lot of the market share towards, against Walmart. We’re seeing that more even high end consumers are gravitating towards Walmart trying to save money. So again the weakness is across the board in terms of guidance, but more specifically towards the clothing and apparel sector.

Caroline WoodsIt’s interesting though, because if you look a lot of retailers that are in the same category are performing so differently, Walmart and Target, obviously the clearance target, more discretionary at Walmart or Essentials. But if you take a look in terms of furniture, RH is down 60% year to date. Wayfair up more than 100% year to date. I know Wayfair has a value aspect to it, but Abercrombie is down huge and American Eagle is up in a big way.

Caroline WoodsSo I guess what are the winners doing that the losers aren’t?

Jharonne MartisSo we’re seeing that the consumer is willing to pay full price. That was very evident. This earnings season, especially with gap. Gap always is known to have at least a 40% discount.

Caroline WoodsNever buy anything on that’s not on sale a gap usually right.

Jharonne MartisBut this time they were able to sell merchandise full price and to millennials and to Gen Z. They with their, you know, catchy advertisements. They were able to lure those shoppers and but the reason why we’re seeing that these are some of the discrepancies that you just mentioned is comes to two things, newness and fashion. And consumers are willing to open up their wallets and pay full price if they see a product that is innovative and different, that stands out.

Jharonne MartisThey don’t want to buy the same merchandise, but they already have in their closets. They want to. If they’re going to pay full price, they want it to be different. And that’s where we see the pockets of winners. Among the different sectors.

Caroline WoodsI guess it’s been a while since I’ve shopped at gap. But what is gap doing that so different.

Jharonne MartisSo Banana Republic actually, that division who used to be one of the weakest performers, is actually one of their strongest performance. They have more on trend merchandise, for the longest time, especially when you go into gap, you go into Banana Republic. You see the exact same shorts, just maybe in a different color, a seasonal color.But this time around, we’re seeing the Banana Republic, you know, has been featuring more on trend merchandise. This is the holiday season. You can find a lot of velvety clothing in there right now. A leather leather components, more upscale fashion than what they used before that it’s resonating well spent.

Caroline WoodsEven longer since I’ve been in the banana. I guess I need to go back in there. Okay, just quickly as we wrap up outside of Walmart and Amazon, which retailer one earnings season.

Jharonne MartisSo any any retailer to do with affordability like, this week we saw, the dollar stores. They’ve been gaining a lot of share, especially Dollar Tree, gaining new customers. And 60% of those new customers are making six figures over 100. Okay. So what we’re seeing is that, consumers from all income cohorts are gravitating towards the dollar.

Jharonne MartisStores are gravitating towards affordability value. They are laser focused on finding a deal. And so off price retailers like TJX and Ross, they smashed expectations as well. Other standouts this earnings season were Signet with their lab generated diamonds that created a lot of buzz five below also because of the new merchandise, they’re able to constantly offer new merchandise every time you walk in, there’s something new and it has great value.

Jharonne MartisSo as a result, those names were the biggest standouts this this holidays, this earnings season.

Caroline WoodsSo they’ll pay full price a gap. But they still want a $4 and five below.

Jharonne MartisThey want those deals.

Caroline WoodsAll right Jharrone Martis, thanks so much for joining us. I always appreciate your insights.

Jharonne MartisThank you for having me.

Caroline WoodsThat’s Jharonne Martis, Director of Consumer Research at LSEG.