YouSaid · the spoken record

David G. Schick

lines on the record: 24
first: 2022-11-08
most recent: 2022-11-08
sittings or episodes: 1
sources: podcast

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“The demand front, I'll back everything Kate just said. I think we would expect a relatively stable but lower growth demand environment. I think the more interesting thing from an e-commerce perspective, which really applies just to Amazon, Amazon has long not gotten right the big categories of wallet share by the US consumer food, CPG, big ticket items that people tend to get in their car, go to a store, buy a lot of on the weekend, and then bring them back home. I think for them to sustain high single, low double digit growth in e-commerce, the days of consumer electronics or physical media being the driver of that are probably more behind us than ahead of us. So I think what I'm watching for in 2023 is how well Amazon executes on the competitive dynamic with some of Kate's companies vis- ⁇-vis some of these big wallet share dollar categories going forward. I think that's probably going to be the more interesting dynamic to watch for in 2023.”
2022-11-08 · Goldman Sachs Exchanges · Amid Rising Inflation and Slowing Growth, How is the U.S. Consumer Faring? · IDENTIFIED FROM THE TRANSCRIPT
“That's right, where you won't see prices come all the way back. We don't think, depending on what category it is. And you might see a few more units sold because you're lapping a time when not as many units were sold.”
2022-11-08 · Goldman Sachs Exchanges · Amid Rising Inflation and Slowing Growth, How is the U.S. Consumer Faring? · IDENTIFIED FROM THE TRANSCRIPT
“With regards to the outlook for 2023 using David's outlook and the economist from GS, there is some thought that the consumer from an income standpoint will be in a good place. You're not lapping stimulus like you did in 2022 versus 21. And if there's a softer landing with the macro environment, you could see consumer cash flow up a little bit in 23. I think what's going to be interesting is what I started saying today in our conversation is that a lot of the sales were more price led than unit led. When we go into 23, the unit compare becomes much easier. So we do expect maybe a more balanced unit versus price driving environment for sales. And I do think it could look healthier than even 2022.”
2022-11-08 · Goldman Sachs Exchanges · Amid Rising Inflation and Slowing Growth, How is the U.S. Consumer Faring? · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, Amazon didn't really call on a need to be overly promotional. They said they would follow some of Kate's companies in North America if need be. They made very positive comments about where they sit in terms of inventory coming out of Prime Day was a couple hundred basis points of added growth in Q3, the two-day event that Amazon had in July as a tailwind for growth. They're a little more worried about Europe than they are the US. So it comes back to both tying some of David's comment about broad global consumer demand, which some of Kate's comments that seemed a little bit more US specific. Really, Amazon's worry, well, it got painted with a broad brush in its coverage last week by the media, was really more about Europe is slowing very dramatically. It's energy price driven, its Ukraine conflict-driven. So I think if there's a worry about having to be promotional and or not having demand against the supply they've built up, they're a little more worried about Europe than they are North America.”
2022-11-08 · Goldman Sachs Exchanges · Amid Rising Inflation and Slowing Growth, How is the U.S. Consumer Faring? · IDENTIFIED FROM THE TRANSCRIPT
“Yes. So it's an interesting question. We know that prices are much higher than they were a year ago. We've seen it in the breakdown of ticket versus unit in a lot of our retailers. We've seen high single digit ticket growth. Now, that's not all absolute price where the price has gone up 10%, but it's there. Prices are higher. But if the consumer is slowing, if goods are more in stock, it does beg the environment to be more promotional. And all of our companies have warned us that they are definitely going to be more promotional than last year, which I don't think is too hard of a conclusion to come to. It makes sense. The question is, will they be as promotional as they were before the pandemic? And that's the debate by investors right now. The companies are telling us that they're smarter about inventory, they're smarter about conveying sales to their constituents, but at the same time there is a fear that if that consumer starts to slow around holiday and there is all this inventory that you will see a heavier load.”
2022-11-08 · Goldman Sachs Exchanges · Amid Rising Inflation and Slowing Growth, How is the U.S. Consumer Faring? · IDENTIFIED FROM THE TRANSCRIPT
“Of twisting of the supply chain. If that were to not happen, you have seen the reduction of ships from the ports. You've seen the ports become a little bit less clogged. You're not seeing the chase for inventory. So 23 is looking better from a supply chain standpoint.”
2022-11-08 · Goldman Sachs Exchanges · Amid Rising Inflation and Slowing Growth, How is the U.S. Consumer Faring? · IDENTIFIED FROM THE TRANSCRIPT
“I think from our point of view, if we back up just a little bit going into holiday, one of the biggest concerns around holiday 2022 is being in stock because holiday 2021, nobody was in stock. You went to the stores, there were empty shelves, retailers left a lot of money on the table. So this year, you had seen a big effort, and honestly, it kind of begets why the supply chain was in the state that it was. It was these retailers chasing all of this product that they wanted to be on the shelves. And so as we enter into holiday 22, I think you'll walk into most of these retailers and see heavily stocked shelves. We'll see if it's too much at the end of holiday, but they will be in stock. But in order to have done that, they brought in all these goods very early. And I think looking into 23, the expectation is now that chase is done. Now that demand might be normalizing, you will start to see some alleviation in the supply chain. One other thought is that the COVID-related shutdowns in Asia is another reason why you saw.”
2022-11-08 · Goldman Sachs Exchanges · Amid Rising Inflation and Slowing Growth, How is the U.S. Consumer Faring? · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, we haven't had too many prints yet. We've had a couple of auto part retailer prints. We should probably concentrate on that a little bit because we do get quite a few investor questions. Auto part retail is one of the most defensive areas in which we cover because everybody needs their car to work. And we've all known what's been going on in the car industry with the supply chain. It's been hard to get a new car. It's been hard to buy a used car. And therefore, the average age of cars continue to go up and consumers need to fix those aging cars. And because of that, we've seen some of the strongest trends in auto part retail and that's something that has persisted through the third quarter.”
2022-11-08 · Goldman Sachs Exchanges · Amid Rising Inflation and Slowing Growth, How is the U.S. Consumer Faring? · IDENTIFIED FROM THE TRANSCRIPT
“Sold last week, and a return to that visibility is very much needed to bring confidence. And with confidence comes multiple in the technology industry. And that's what will bring some of our companies back. Amazon was the one I thought that in terms of the long-term secular bull thesis, cloud computing and where they stand with the consumer is probably the most intact by far. And that was the one that actually rallied off the worst of the reactions we saw last week.”
2022-11-08 · Goldman Sachs Exchanges · Amid Rising Inflation and Slowing Growth, How is the U.S. Consumer Faring? · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I think just away from the consumer, I'll say the largest technology companies are slowing. They're big, they had enormous benefits from the pandemic. There are some overhangs from the economy, especially in Europe that are now impacting these companies. They're slowing growth rates. We're now talking about low single digit growth rates for many of these companies. I think there's better growth rates ahead against this theme of normalization, but we are adapting to a new lower growth algorithm. When growth investors get thrown lower growth, they look for profits and free cash flow. Unfortunately, most of my companies are throwing heavier levels of investment. So you saw the semiconductor industry rally because most of my companies are talking about building more data centers, building more infrastructure, and CapEx numbers were going up next week. So the lack of visibility into an output on cash flow in a low visibility environment on growth really was an algorithm that gets sold by growth investors.”
2022-11-08 · Goldman Sachs Exchanges · Amid Rising Inflation and Slowing Growth, How is the U.S. Consumer Faring? · IDENTIFIED FROM THE TRANSCRIPT
“Maybe if I could just jump in for a second, I think you're also seeing elements of subscription come in here Amazon Prime households are north of 90 million households in America Amazon talked about on their earnings result last week that they added the most number of prime households ever in the month of September just this past year with the launch of Thursday Night football So you think about that a piece of media content led to probably 5 million plus households becoming prime membership households just through that content investment So what you're seeing is the consumer wants what they want as fast as they can get it, as cheap as they can get it. Sometimes Kate's companies are going to be the ones that do it sometimes it's going to be Amazon it's also pushing Amazon up the investment curve right and we've seen two years of outsized fulfillment center investment local delivery investment from Amazon some of that's now starting to moderate but the throughput of the yield from that is going to be Amazon wants to do same day delivery there are plenty of cities in the United States where Amazon has two and four hour window”
2022-11-08 · Goldman Sachs Exchanges · Amid Rising Inflation and Slowing Growth, How is the U.S. Consumer Faring? · IDENTIFIED FROM THE TRANSCRIPT
“I think it is. I think it could evolve over time, but I think what we've learned is the consumer loves optionality. If they want to buy something at the store and see it and feel it, they can go to the store. If they want it just delivered to their house because they buy it every single week and they know what to expect, then they'll get it delivered. And then just whatever convenience I think that can be introduced to the consumer, they're going to try. And it does seem like the click and collect piece is really sticking. Target has highlighted for the last several quarters. It's the fastest growing piece of their digital business.”
2022-11-08 · Goldman Sachs Exchanges · Amid Rising Inflation and Slowing Growth, How is the U.S. Consumer Faring? · IDENTIFIED FROM THE TRANSCRIPT
“Yes, we are. So we did hit that peak penetration at e-commerce or ordering online with the brick and mortar stores in 21. In 22, we've started to see some erosion of that. We're not going to pre-pandemic levels, but you're seeing more people come back to the store.”
2022-11-08 · Goldman Sachs Exchanges · Amid Rising Inflation and Slowing Growth, How is the U.S. Consumer Faring? · IDENTIFIED FROM THE TRANSCRIPT
“Yes, I actually love talking about this because there was a very short period of time where I didn't know if there would be brick and mortar for me to cover and that it would just be Eric covering Amazon. But what we started to see maybe a year or two before the pandemic in earnest were the retailers starting to lean into their asset base, which is their stores. They figured out that most of their stores are within 90% of the US population within one or two days of delivery. And because of that, you're starting to see a lot more fulfillment from the stores. So Eric mentioned the fulfillment by third parties like Uber and DoorDash. That's been extremely successful. And the customer is willing to pay for it. That is a service fee. The retailer is not covering it. The retailer loves it because it's not two-day free ship that they have to pay for. And the consumer is getting it in the time that they want to get it in. The other thing that's been a game changer in my mind has been the click and collect concept, which is something that Walmart and Target introduced before the pandemic where you order online, but you drive up in your car and you stay.”
2022-11-08 · Goldman Sachs Exchanges · Amid Rising Inflation and Slowing Growth, How is the U.S. Consumer Faring? · IDENTIFIED FROM THE TRANSCRIPT
“There are companies I cover like Uber and DoorDash and others that will tell you they're partnering with a whole host of Kate's companies on Delivered from Store, pick up from store. So this element of local commerce is getting more refined. E-commerce as defined as getting more refined. But all we're really doing is finding a normalization balance in a post-pandemic world. Goods versus services. I cover a lot of travel companies. They all boomed in the summer of 21 and the summer of 22. And now most investors I talk about are terrified of owning an online travel company because now you're going to have a weakening consumer into tougher comps in 2023. All we're finding is elements of normalization, true north, and growth rates are coming back to those elements from what I can tell.”
2022-11-08 · Goldman Sachs Exchanges · Amid Rising Inflation and Slowing Growth, How is the U.S. Consumer Faring? · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, and I think the main theme that cuts through all the answers so far is the word normalization. We had an enormous pull forward effect from the pandemic. We believe e-commerce gained about two and a half years of penetration gains in the span of nine months from March of 2020 through the holiday period in 2020. 2021 into the middle of 2022 was the normalization effect of that. Things slowed down. Amazon grew roughly 0 to 1% for most of the first half of 22. And now they're lapping those tough comps with easier comps and they're growing back in the mid-teens again. But on a two-year stack or three-year stack, if you were to normalize what revenue looks like, e-commerce is still growing in the high single digits on a normalization benefit. They're going to take about 200 base points of share, e-commerce offline retail, but Kate's companies, and I'll throw it back to her, are increasingly also getting e-commerce more right now than they ever did pre-penned.”
2022-11-08 · Goldman Sachs Exchanges · Amid Rising Inflation and Slowing Growth, How is the U.S. Consumer Faring? · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so it's been a very mixed bag on the consumer side as well, which I think reflects a lot of what David was saying with regards to the fact that you're still seeing a lot of strength in certain categories, but you're also seeing a lot of price-led sales versus unit-led sales. So as an example, categories where we continue to see quite a bit of strength is like home improvement, for instance, grocery or food at home is another category that people continue to spend on. Other ticket items that people can still afford versus big ticket items. Sporting goods is still a good area where people are spending money. These are all places where we did see growth during the pandemic when people were stuck at home, but seems to still be a priority for people, health and wellness, your home, being with your family with food, where we've seen more of a pullback are bigger ticket items and more one-time purchase items that you only buy maybe once every couple of years or maybe in some cases.”
2022-11-08 · Goldman Sachs Exchanges · Amid Rising Inflation and Slowing Growth, How is the U.S. Consumer Faring? · IDENTIFIED FROM THE TRANSCRIPT
“Our best guess is that we will stay in roughly 1% consumption growth neighborhood, and I would really think of that as the ideal in this environment. The Fed is aiming for a gentle solution to the inflation problem, if that's possible. That means you want to grow below the economy's longer-term trend or potential growth rate, but you want to avoid being in recessionary territory. 1% consumption growth, and more broadly, roughly 1% GDP growth that we're looking for, more or less splits the difference. That's about the ideal. Now, again, the big change going forward is rather than falling income and rising wealth, we now have rising income and falling wealth because going forward, there just aren't many transfer payments from the pandemic left to take away. They're all gone at this point. And we think that the combination of employment gains and wage gains should outrun inflation going forward. My best guess would be that those things more than offset the negative wealth effect, and we're left with modest”
2022-11-08 · Goldman Sachs Exchanges · Amid Rising Inflation and Slowing Growth, How is the U.S. Consumer Faring? · IDENTIFIED FROM THE TRANSCRIPT
“So you mentioned though the wealth effect has now turned negative. We are seeing higher interest expense, not a huge drag at this point in time, but likely going to continue because we're going to see the Fed hiking interest rates more on our forecasts. So what does that all mean for spending into the end of the year and 2023?”
2022-11-08 · Goldman Sachs Exchanges · Amid Rising Inflation and Slowing Growth, How is the U.S. Consumer Faring? · IDENTIFIED FROM THE TRANSCRIPT
“I would say obviously higher interest rates make things difficult for indebted households, but at this point, we think debt levels, debt servicing costs are still pretty manageable. Credit utilization fell a lot during the pandemic. That picked up a lot at the beginning of this year. That was actually the difference between household consumption falling and rising. If it hadn't been for that ability to draw on credit lines at more normal rates, we actually would have seen a sharp decline in consumption growth in the first part of this year. That, too, I think can continue at least a little bit. Lenders are probably going to be more cautious, but despite that sharp growth in credit utilization, it's still below pre-pandemic levels.”
2022-11-08 · Goldman Sachs Exchanges · Amid Rising Inflation and Slowing Growth, How is the U.S. Consumer Faring? · IDENTIFIED FROM THE TRANSCRIPT
“Sure, we introduced this consumer dashboard just because there are a lot of moving pieces here. There's this goods to services rotation going on, and there are a lot of things driving overall consumption growth too, both on the income side, on the wealth side, and on the consumer confidence side. On the income side, we monitor carefully things like job gains, wage gains, as well as business and interest income. On the wealth side, we look at total household route wealth relative to disposable income, which hit a historic high during the pandemic, but is now beginning to come down and will probably fall a little bit further if home prices fall further. There are also some more idiosyncratic things that we look at under that broad heading of household balance sheets, such as the excess savings, which were accumulated during the pandemic. Those we think did play a big role in supporting consumption growth last winter, but the peak effect on consumer spending growth is probably behind us. We look at both wealth and debt from a debt perspective.”
2022-11-08 · Goldman Sachs Exchanges · Amid Rising Inflation and Slowing Growth, How is the U.S. Consumer Faring? · IDENTIFIED FROM THE TRANSCRIPT
“From the spring of 2021 to the summer of this year, we had a protracted decline in real disposable income because all of those pandemic-related fiscal transfers, things like the unemployment benefits, the stimulus checks, the child tax credit, they all went away. And on top of that, high headline inflation outran households' labor market income gains. So the thing that offset that during that period, though, was that we had rising wealth gains, home prices were rising, and until this year, equity prices were rising. In 2022, at the moment, we're seeing the reverse of that. Now, household real disposable income is growing again rather than contracting, but wealth effects have turned negative as the Fed's rate hikes have pushed down equity prices and are beginning to push down home prices.”
2022-11-08 · Goldman Sachs Exchanges · Amid Rising Inflation and Slowing Growth, How is the U.S. Consumer Faring? · IDENTIFIED FROM THE TRANSCRIPT
“So there is a lot going on here, but I break it into two drivers of recent consumer spending trends. One is willingness to spend, the other is ability to spend, or how much spending power you have. On willingness to spend, a big part of the initial decline in consumer spending during the pandemic was that people weren't willing to spend on certain services where they worried about getting COVID. In 2021, a big driver of that blowout consumption growth was that people became more willing. That's actually extended into 2022, especially in the spring of this year. We saw a big jump on spending in categories like recreation activities, restaurant activities, transportation, and so on. That's not going to provide a boost to consumption growth forever. We've probably come most of the way we're going to come. There is a bit of a further increase to get back to pre-pandemic levels, but I wouldn't count on that too much. What about the other driver, ability to spend? So here things have flipped for a year and a half.”
2022-11-08 · Goldman Sachs Exchanges · Amid Rising Inflation and Slowing Growth, How is the U.S. Consumer Faring? · IDENTIFIED FROM THE TRANSCRIPT
“I think consumers are doing fine. In 2021, we had blowout consumption growth around 7%. This year in the first three quarters, it has slowed to about 1.5% on an annualized basis. But in this context, where the Fed is trying to keep demand growth below potential so that we can solve this inflation problem, that's exactly what you want. We've seen a big slowdown. We have not seen a contraction in consumer spending. And a slowdown is what policymakers are looking for.”
2022-11-08 · Goldman Sachs Exchanges · Amid Rising Inflation and Slowing Growth, How is the U.S. Consumer Faring? · IDENTIFIED FROM THE TRANSCRIPT