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Takeaways from Goldman Sachs Global Retailing Conference

Thomas Paulson
Sep 15, 2023
Takeaways from Goldman Sachs Global Retailing Conference

Goldman Sachs holds their Global Retailing Conference in early fall, which gives retailers an opportunity to follow-up on their Q2 2023 results, offer some color on the back-to-school season, and provide commentary on their expectations for the holiday season. It is one of the highest profile events of the year for retailers and the investment community.

This year’s news from the event was that the consumer trends that were evident in July and August have continued. More specifically, the return of student loan repayments isn't a factor yet and high prices for essentials like food and shelter remain negative consumer spending headwinds. And while the outlook for the holiday was constructive, that is the typical tone. You can find our summary for last year here, but in a nutshell, after a good back-to-school period in 2022, retailers were feeling optimistic about the second half of the year and holiday 2022. That proved to be “wishful” as the consumer curtailed spending starting in October and sharply curtailed spending in November. The curtailment was the result of persistent high inflation in household essentials and the choice to spend on entertainment and experiences at the expense of spending on goods.

Below, we've presented other notable learnings from this week's event.


Walmart CEO Doug McMillon said, “In the U.S., things are better than I would have expected them to be when we started the year. I was concerned about the amount of inflation in categories like dry grocery and consumables, how that would impact discretionary purchases, had an eye on the consumer balance sheet, all those things that we were all thinking about at the beginning of the year, but things have held up better than I would have guessed...We do see pack size changes, moves to private brand, all those kinds of things that you historically heard us talk about...And in our case, we've been able to attract customers across income cohorts (something we've discussed in the past) which has improved our situation as we've been able to grow share. I'm feeling pretty good about where the consumer is in the U.S. and encouraged by what happened going back-to-school. As we reported at the end of the second quarter back-to-school started off strong. Normally, that means that holiday is going to be good. I feel pretty good about the back half and our position in it.”

On inflation and category mix, McMillon said, “The more disinflation happens in categories like dry grocery and consumables, the more discretionary income [consumers] have to buy general merchandise. We may see mix shifts...and I think holiday is going to be pretty good. I don't go into next year feeling too pessimistic.”

McMillon's comments also implied that he expects dry grocery prices to be lower in 2024 compared to 2022. Below, we write about Sprouts’ comments at the conference. They don’t expect dry grocery price deflation, they expect continued inflation. It is the category that they make their margin on. If major grocers lower prices to drive volume--see our discussion on Kroger's recent results--Sprouts may have a challenging 2024 from a profit perspective. And so, watch Sprouts’ traffic carefully over the next six months.

McMillon also commented on new Sam’s Clubs and Walmart locations, “There are opportunities in places like Texas and Florida where we can easily see that we need new buildings." A new Walmart store can be disruptive to a trade area can take a lot of local market share. Walmart's established locations in Orlando do around between $60M-$80M in sales annually. Texas and Florida are developed markets and so Walmart’s expansion would have to come at the expense of incumbents. We are also reminded of Aldi’s recent acquisition of the Winn Dixie and Harveys banners, which we suspect is a move to quickly scale up in the Florida market. As such, it is very interesting to hear Walmart say that they also see the state as a market for expansion.


Sprouts Farmers Market CEO Jack Sinclair reiterated his goal of opening 30 new locations in 2023 and 40 in 2024. He also shared that the new openings are performing well. Below we show the three new openings over the past year in the Los Angeles DMA. The new Lancaster location is trending above the region’s average. Fountain Valley and Palmdale are about 75% the average, which is in the range of overall company new store productivity.

On new locations, Sinclair said, “We've gone from 32,000 square feet to 23,000 square feet as a format. And the fundamentals are if we can sell the same amount in 23,000 square feet that we did in 32,000 square feet, you can make a lot of money relative to the returns that we can get on it...Our store portfolio growth, California, Arizona, Texas, Florida, and the Mid-Atlantic are the kind of key big drivers.”

One of the ways that Sprouts is doing the same volume in the smaller format is third-party delivery. At the conference, Sinclair noted that 10% of their sales came from third-party pickers and drivers from Instacart and DoorDash. Additionally, this order is 2.5x the size of the average store basket value (on a dollar basis). Only 2% of sales come from curbside pickup. As the 10% figure is far outside the bounds of traditional or small-format grocery peers, it would be surprising if the retailer can grow from current levels.


Tractor Supply continues to be very pleased with its remodeling program (called Project Fusion, which now represents 30% of chain's 2,200 stores). We would expect a similar level of remodels in 2023 (versus 2022), with favorable trends on its new outdoor garden centers (200 locations). Interestingly, Tractor Supply has seen different theft-shrink trends than many urban-centric retailers, with CEO Hal Lawton saying that this year’s theft-shrink will be less than 2022, which in turn was less than 2021.

Tractor Supply also noted that they were not seeing consumers trade down (50% of Tractor Supply’s revenue comes from livestock and pet). That contrasts with comments from General Mills’ (Blue Buffalo) that “U.S. pet parents increasingly cautious about their economic outlook, some have been shifting toward more value-oriented products and channels as well as smaller pack sizes. In addition, pet parents spending more time away from home has negatively impacted the treats and wet food segments of the category.” These comments, in combination with Placer data showing softer traffic for Petco and PetSmart suggest that recent trade-down is more an urban / suburban phenomenon.

At the conference, Petco CEO Ronald Coughlin said, “In today's environment, there is more demand for value. We need to supplement our strategy with more value products...In the middle range is where you need to be more price competitive when the products are more mass. Those are the adjustments [i.e., where Petco is lowering prices]. Now the impact will be more pronounced in the near term and then obviously alleviate over time. Historically, we've done three of these since I've been at Petco in different segments, and they've been beneficial from a customer standpoint. Historically, it takes a couple of quarters for breakeven and then roughly just a little over a year for payback.”


With respect to lower theft-shrink in rural markets, Lowe’s CEO Marvin Ellison also confirmed the distinction, stating, “Quite candidly, we think that our store footprint...being rural, remote and suburban, also plays a positive benefit because those stores not only are at a different cost model to operate when you look at physical plant, when you look at labor costs, but also when you look at shrink.”

On business trends, Ellison said, “We think the small- to medium-sized Pro is relatively healthy. And we think the DIY consumer is cautious. That cautious DIY consumer is more geared towards large ticket interior projects...that impact our appliance business. As we look at 2023, we think the cautious DIY consumer on big ticket and the Pro business remains relatively steady.”


Recall our story from a couple weeks ago about Lululemon looking to accelerate their U.S. footprint expansion. At this week's event, CFO Meghan Frank, “We're very highly productive today to over 1,600 sales per square foot on an average for the fleet. I would say we see about 2 to 3 years today in terms of reaching maturation for a store.“ To our ears, this suggests that they know they need to increase the rate of openings and self-cannibalize existing locations to take the pressure off these existing highly productive locations.

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Thomas Paulson

Director of Research and Business Development,

Thomas Paulson spent 20 years as a Wall Street analyst and a member of asset management teams at AllianceBernstein and Cornerstone Capital, representing top-50 ownership positions including Target, Home Depot, Nike, Amazon, Google, and many more. He brings consumer related expertise and knowledge of enterprises in retail, CPG, financial services, telecom, and entertainment.

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