Home Improvement Trends and Pro Services

Hello and welcome to the mododern Retail podcast. It's our show that covers the ways the retail industry is changing and modernizing. I'm Special Projects editor Melissa Daniels It's been a big week or two for earnings reports with companies like Target, Walmart, Home Depot, TJX, and more reporting their first quarter results. We're at this really interesting point where consumer sentiment is hitting all time lows. and as we recently spoke to Carney's Katie Thomas about People are still spending They're just spending differently So if you're a major public retailer right now, you've got to be laser focused on finding your consumer, keeping your shopper, and still finding a way to grow To help me unpack all this and go over this week's earnings, I'm joined by modern retail reporter Mitchell Partin Mitchell, how are you doing today Hey hi, Howdy. I am doing great. How about you I'm doing great. Thank you so much for making time in your day. How's your Q two going retty pretty busy so far. lotots of retail earnings this week, as we'll talk about in a sec. Yeah, you've had a bunch of stories out of earnings this week showing what strategies are working and not working for some of these companies, the challenges they're facing. So let's just get right into it. I want to talk about some of the sort of hits and misses that we're seeing in these earning reports, the things where companies are hitting it out of the park and the things that are challenging them right now. So let's start with arguably the biggest win, which is perhaps an unexpected one, and that's Target's earnings I don't know if I would call it unexpected that they won. I think they've been We knew they were making changes. I think it was just a question of how impactful it would be on performance and how soon and it was It seemingly has been pretty impactful pretty soon. We saw like seven percent increase inet net sales, four point four percent increase in store traffic. They said So Some pretty good stuff in the near term. I think we're going to want to see how this looks a few quarters out. For anybody not as familiar with Target, Michael Fidelki is their new CEO. He came in recently to kind of turn around this Prety pretty devastating few years of sales at Target A after you know, there's been things like boycotts, but there's also just been kind of a discretionary spending environment that's not really been in the company's favor and a lot of operational mistakes, a lot of people would say from long lines, empty shelves a lot of things people are seeing in the stores and on the backke end as well So We're in the beginning of this this turnaround. job, but things are looking good in the immediate term Yeah, I think that's a good assessment. I think I saw somewhere that this was, you know, the first quarter in a while that they had actually posted growth and not declines Yeah, as far as net sales it goes, it's been at least a year and a half or so And I think comp sales maybe several years. So good numbers for them makes Fidelki look really good in the near term When we talk about how they're doing this, they've talked a lot about having sort of a multip pillar strategy. You know, you mentioned improving store operations. It sounds like they've done a lot of training with associates and really working on making the in store experience more pleasant. They've also just done some big overhauls on merchandising. Curious, you know, when you looked at the earnings this week and listened to the call What were some of the biggest things that you think are driving growth for them right now? Like where are they winning their shopper backag They're focusing in on their assortment. I was in Minneapolis a couple of months ago to listen to their kind of pitch on kind of their relaunch, essentially They're refreshing a lot of their assortments. That's a lot of what they told us, like refreshing a lot of different categories. fooccusing on like on trend products is the big thing. You see them doing a lot of Social media work, a lot of data data, science there to kind of see what's the most popular thing and a lot of supply chain work behind the scenes too get that stuff on their shelves. We'll see how effective they are in doing these things and how how they're doing that. The other thing that goes along this is there's been a lot of I wrote about this, read my story on how they They've been doing a lot of kind of cultural moments, a lot of big launches with different collections They've done this forever. They've done this for decades, but You're seeing them leaded into it and you're seeing their chief merchandising officers say, we want to do more of these big launches. U those being This quarter we had a big partnership with Roller Rabid, which is something we've covered quite a bit which is a big TikTok apparel brand. We had Park, another big TikTok brand. You'll see a lot of TikTok brands at target which might be smart of them, as well as Pokemon on the other side of the the other side of the world, but you know, people flock the target for Pokemon cars. they've seen a lot of success reportedly on They're Pokemon partnership Pokemon Aarel, Pokemon even pop tarts Pokemon like food and beverage, like Pokemon jackets, Pokemon everything. they've been doing kind of a full a multi category Pokemon thing, which is pretty smart because they've been really good on that in kind of the card game aisle kind of bringing that to the rest of the store. So they've Sen a lot of success in that they say they want to do more and more and more of that kind of thing throughout the year. Yeah, it's really smart and it's really fun. You know, we've talked about on this show before about how much we love a collab and what a smart strategy it can be if executed properly. And it just seems like they've gotten a little bit of their mojo back and finding what the trends are and what people want where you know folks are rushing out to get that limited edition, whatever it is. I mean, even last year, we saw a glimmer of this. I remember their Kate Spade collaboration did fairly well. I remember seeing some of that sell out. You know, a modern retail podcast veteran guest Cassie Ho from Pop Flex has her blog a Lotties linine at Target. She's brought that back a couple times now and it's doing well and tends to sell out some lines fairly quickly. So I think we're going to see this being a continued strategy for them. And I think, you know, just assortment, assortment assortment is is what's going to keep them you know, seeing this growth curious, you know, looking ahead, you know if they came back for this one quarter, it's looking great, but you know can they keep this momentum? And CEO Michael Fidelki talked a lot about this on the earnings. He was as hedgy as you would expect a CEO in his position to be saying, this is great and the work is not done yet. You know, what will you be looking for a few months down the line when they show their Q two earnings Yeah, Q two earnings, they've been pretty upfront that the sales year overready are good probably going to be as Rsy because we had a big Nintendo Switch to launch the game console last last Q two. So it's pretty hard for them to, you know, it's going to be a hard one to to look at the year over years for But their strategy is long term And I think investors want to see some consistency and overall growth and like returning to profit on kind of a long term basis. So this is not something that anybody thought would be a one quarter overnight thing. They're doing a lot of long term work. None of this stuff is new to Target. It's just kind of doing the same things they've been doing for a long time. like these product collaborations or or the same sort of supply chain. They aren reinventing the wheel. we knew Fely wouldn't because he's been on the team for quite a long time, but they're focusing on just like operational excellence probably they probably said. Just focusing on doing the things Target is known for really, really, really well So that is what they're trying to do And we'll see if that plays out down the line I wouldn't expect a killer to Q two, especially with the swwitch launch last year Well we'll have to check back in with you, come target Q two earnings and see if you were appreciient enough on that sales basis. But let's move on to another topic. And this is really a miss for the quarter. and it's one of those misses that I think is affecting companies off all stripes, not just major publicly traded retailers, and that's fuel costs trickling down to companies, you know, the Ogoing conflicts in Iran have really disrupted fuel and we're really seeing that at a consumer level and of course, a business operations level. And I think Walmart was the clearest this week in spelling out how the fuel costs are affecting them. They said that they've absorbed approximately one hundred seventy five million dollars of operating income growth from higher than planned fuel costs. And that's across their global distribution and fulfillment operations. You actually listened into the earnings call earlier this week. know Tell me about how they discussed fuel costs and what this is going to mean for Walmart moving forward Yeah. so Walmart has a pretty good financial picture, but it was still a bit of a not so rosy earnings call in some ways Because we were talking a lot. they were talking a lot about the fuel costs and the situation in Iran that's that's coming back into consumers' wallets They were talking about how consumers are already pretty squeezed they're seeing. this stat was actually phenomenal. I'm glad they gave this stat So Walmart has gas stations if you don't know this If you're in New York, like me, you might not know like Walmart has gas stations, but they do And they said the average number of gallons consumers filled up with at their gas stations fell below ten gallons for the first time since twenty twenty two. really showing some stress on the consumer front. L they' they are watching their gas pumps right now very heavily and Walmart' seeing that So that alone is a very eye opening stat to what Walmart is seeing on the consumer front So pressure on household budgets for sure. and that that kind of goes down to their entire their entire outlook You know, they're still really good. they still have a good outlook. They still reported a seven percent year over year rise in their revenue. They've operating income growth of five percent. Like to be clear, Walmart is still as dominant as it has been. but I just thought it was really interesteresting and you, chilling in a way for them to be like, hey, this is how much we're absorbing because this is how hard fuel costs are hitting us. And then like you said, how hard it's going to shift the consumer spending habits as well Yeah, for sure. and they're talking about how it affects food manufacturing too distribution fulfillment operations, all of that all of that is affected byy what's going on and The one interesting thing about Walmart's business lately is how it's becoming more than just a retailer. And they're hoping they're hoping that things like their membership program and their advertising business are going to They say it's already couching them from a lot of the impact here on the financial front. It gives them it gives them a Way higher margin businesses overall that can offset some of the macroeconomic troubles of doing traditional retailing in certain environments. They can, you know, they have ad they have their ad business and subscriptions that they can lean on. So that's really interesting. That goes to some of the work we've been doing tracking Some of these other parts of Walmart that keep getting bigger and bigger and are maybe saving them Yeah, I believe they reported that the global advertising business is up thirty seven percent. I mean, that's massive when you think about how large that is already and how seasoned it is and that it just keeps growing at that rate. And then the membership fee revenue went up seventeen percent. So that's got a healthy clip too. When you were listening in on the call, what did they share about these new higher fuel cost mean moving forward. It sounds like the CFO, John David Rainey, was actually warning like, hey, we might have to make prices on the shelf higher Yeah, they're expecting that They might have to raise prices in the next coming months. And one interesting thing they talked about is how tariff refunds could potentially play into this. They were very cautious on this front But You know, because everybody's asking on these earnings calls, like are you going to try to get refunds? What's the status of these things or is this even a possible thing? And Walmart is anticipating that it may be eligible to receive As Iorter record, less than half of one percent of its US annual sales. So about like two point nine billion if you're doing that off of last year's. Wow. U sales, but like, you know, it's a lot of money for anybody but Walmart. It's a small number compared to all sales. It's not even reflecting this. They're not reflecting this in their guidance even They wanted to focus on the underlying business and their guidance. They said But their plan for that is to reinvest it into prices if they do get it back. And they said that's the best thing they can do with any dollar of capital right now is to invest in the customer and invest in price John David Rainney, their CFO said So it's interesting to see that being their focus. They're obviously worried about prices. and are looking for ways to reinvest in that through through potentially the refunds Yeah. I think that's a really great look ahead for Walmart and just the overall effect of some of these macroeconomic conditions, right? OK, fuel costes are higher. That's going to affect everyone from shoppers to businesses Things might have to get more expensive, but on the flip side of that, where can Walmart as a company absorb some of that or invest back into the business to keep prices low. so shoppers don't cut back or trade down too much? Well, keeping in part with the way that shopper behaviors are affecting public companies, another big hit for me this week that I saw was the TJX earnings and off price retail in general, which has just been on a tear TJX reported its first quarter of twenty twenty seven earnings on Wednesday. They've got one of those funky calendars, and that showed that net sales hit fourteen point three billion dollars, which was an increase of nine percent over the prior first quarter. Comp sales are up six percent and they outperform their expectations. They even increased their full year fiscal year twenty seven outlook. seeing comp sales growth of three to four percent for the full year. I mean, to me, this is just indicative of how much people love a deal, how much people love a value, how much people love a treasure hunt. Are you an off priceed shopper at all, Mitchell? Is this an area that you personally or professionally operate in I'm not. I'm eager to learn more. I should be. I don't know why I'm not I will say I think what makes TJX and the companies under its banner, you know, TJ Max, Marshall's homeome goodoods, what makes them so strong is their assortment, right? And the CEO and president, Ernie Herman talked about that on the earnings this week. and he says, you know, between the off price business model and just the ability that they have to get trending categories and trending items in their stores really fast is such an asset right now. And when you think about shoppers who want value, getting something that is on trend at a good price is really, really compelling. And so they have this going in their advantage. One thing I didn't realize, they shared this on the call is that they have fourteen hundred buyers in their system, and that's for a global store footprint of around five thousand two hundred stores. And these buyers are adding thousands of new vendors every year. So if you just think about what is showing up in commercials or at TJ Bags, it's just constantly refreshing. So you could have a shopper go in there every seventy two hours and walk out with sixty bucks or something new And I just think this is what's gonna to keep them having a lot of success right now when people are looking to just have a little more value and also still shop and have fun. You know, we talked about that with Katie Thomas a couple weeks ago too, that like, you know, people don't w to stifle themselves either. You still w to look good, you still w to feel good, You still want to buy toys for your kid or you know, freshen up your home with some new fancy throw pillows, which I may have to go to Marshallalss and do later How How are they operationally thinking about thinking about getting like this is something we see back at Target a lot There's a lot of supply chain operations, a lot of deal making that has to be done to get those on trend, to get the latest things quickly. Within that off price model, that deal focused discount model, have they talked a bit about the levers they have to pull to get to get that trending stuff, get it on time and get it into the stores quickly. Yeah, Ernie Herman actually talked a little bit about that this week and he basically said that, you know, they're the first call that their vendors make when they have access inventory or something to offload. And so having that relationship is huge because then once you have a relationship with someone, they're coming to you. And so it's just kind of like a cyclical relationship that they have of, okay, we're going to take your stuff and we're going to move it So having those long standing relationships is really big for them. And then again, it's just the buyers. It's the buyers scouring for newness It was funny when I was listening into this call. He was a bit like, not cagey, but someone had asked, one of the investors had asked like, can you tell us like what trending categories you're looking at right now? And he's like, no, I cannot. Really Because they want to keep it close to the vest, right? And they don't want to give away what they have planned and they don't want competitors to know that. So they were a bit cagey as far as the specifics of the categories. But what he did say is that they just get super aggressive when something's trending. He actually said that, quote, one of our big advantages is hand to mouth, we can adjust to strong category performance and we can back off weaker category performance faster than most other retailers that we know of So if I'm a target and I'm buying a ton of wholesale inventory and then suddenly it doesn't move, It's not popular for whatever reason, I'm like stuck with that becausecause TJX refreshes so often. They're not gonna to get stuck with something that's not moving because they're getting it in these like smaller vendor based batches. It's an interesting model, you know, and it's been around for a long time, but I think in this environment, it's just serving them really well They're a big hit with shoppers right now. What what's what do you think is some of their some of their biggest advantages in the marketplace compared to some of the someome of the other players in retail Qion, you know, when I think about a brick and mortar experience You want that to be as convenient and efficient as possible, you know, and like Nobody likes going to a store and having to wait for an associate to unlock the deodorant. You know what I mean? Like stuff like that is just such a drag. Having to wait in line is a drag. and We're also short attention spans these days that I think having a really efficient in store experience is important And that is something that TJX has leaned into. They have invested in payroll more. I don't have a specific number for you there, but they've been looking to staff up and retain people. And so when you go to a Marshalls or a TJ Max You rarely will see just one person behind the counter. There will be several folks at the checkout and their checkout lanes will have like seven or eight stations And they have a light that goes off when that station's ready, so the next customer knows where to walk over to. It's extremely efficient. And I think that makes the shopping experience a lot more pleasant than when you are say getting in line at a different big box retailer and having to wait there behind five different people for a long time and put all your stuff on the conveyor belt. It's just a faster transaction What are some of the biggest challenges they're facing right now I mean, I think For any off price, your challenge is going to be, do people still have the discretionary income to come in and shop You know, I think they're always going to have that hovering over them because Frankly, like do I need anything at Marshall's right now? Probably not. L let's be honest, but like to that point where I'm like, oh gosh, I don't have any ankle socks that fit or something like that, it might be one of the first places I go to So I think just the overall shopper like demand is something that they should always be cautious of And then again, I think back to fuel prices. I think if their vendors and the brands that they work with run into situations where they're getting leaner on inventory and they don't have this excess of hot trendy items to offload anymore in for a world of hurt. So you know to the extent that they are dependent on their brands, that's like an inherent risk of the model. Yeah, it's all it all comes back to supply chain with with any readsour Yeah, great plug for our supply chain newsletter, which you can sign up for at modernreail.ca Well let's get into another miss for this quarter of earnings. Again, this is all coming back to the macroeconomic conditions under which we are surviving and trying to thrive. And this is something that Mitchell, I sort of want to hear your take on, but we are still seeing continued softness in the home category I feel like this idea of home and DIY being on its heels is just a story we see quarter after quarter. People have been waiting for a housing market recovery for a little while, like hoping mortgage rates had come down and then you know, this is how the cycles go. As a former real estate reporter, rates come down, prices up, people's values go up and people people, you know, start buying you hous hes all that sort of thing didn't happen probably a lot a lot because of the Middle East stuff, A lot of the stuff we've already been talking about. The economy' tough. people are You know, people are locking themselves back in again, peopleople aren't going out into the market And then we start to see the impact on companies we'll talk about in a second like Home Depot and Lowe's Right. Yeahah, let let's start with Home Depot. you know, my read of their earnings is that it's relatively flat demand. You know, their comp sales were ero point four percent, which is You know into a rounding error I guess it's growth but it it's certainly not the six percent that some of the other retailers and other categories are seeing, right? And President Edward Decker, presresident and CEO Edward Decker said that the underlying demand in the business is relatively similar to what they saw throughout the fiscal twenty twenty five year two To be fair, to be holding stable despite that dip in housing, despite, you consumer uncertainty, you know, you have to just think that they're still doing something right and still meeting some demand out there. But it's just a category that I don't think we're going see big growth out of anytime soon. One interesting quote from CNBC was the finance chief Richard Mcphhailes said S shoppers are gaged up to a certain point. Anytime we would cover home retailers, we talk about how customers have been pulling back on larger projects. This has been nothing the lastess few years Uh shoppers aren't doing their decks, they aren't doing their roofing project, etcetera, et cetera etceter Um, they're still not they're a little worried about the market still, unfortunately They didn't get that magic inter straight. that would have helped out with buying houses or buying buying equipment or paying for some of that work Right. and it doesn't seem like it's something that's going to change anytime soon. And you know, I think this is where you look at some of the other omanies that cater to homeowners or even renters, as you've written about. you know, if people aren't doing a deck or doing a roof, maybe they're buying a new area rug for their patio. Maybe they're replacing some lighting. I think it just becomes smaller projects and smaller upgrades. You know, to that end, Wayfair's most recent earnings show that they had seven percent growth in Q one And you know, that's a retailer that I think prides itself on affordability and convenience and is, you know, going after people who maybe are just doing a small refresh instead of a giant project The weaker categories are going to be the big the big ticket items, the larger appliances any large items, but you know, people will still I think I covered this a few months ago. peoplee will still buy some of the smaller decor items or things and retailers It's all coming back to me. This is last quarter's coverage probably. but Rter Rnters are kind of the focus for a lot of retailers right now. You know like maybe focusing less on the appliances and more on M on those rugs or the wall decor or maybe table wear, et cetera to wonder and this isn't something that I think was addressed in you know, either Home Depot or Le's earnings, which we'll get to in a second. But I do have to wonder what the second handand and resale boom has done to these retailers to that end. because, you know, I'm probably not going to get a dishwasher secondhand, but like M get a bookshelf, you know, and that's maybe furniture that's not competing with Home Depot directly. But I do feel like there's this idea that if people are going to do a home refresh, they're going vintage, they're going a Facebook marketplace. I'm not sure if they're going to big boxes as much. And I just think that's something that might continue to happen if people are watching their budgets Yeah, I think if people do want new products though, like a lot of the big box retailers or an IKEA or a target. They they've worked they've worked quite a bit over maybe the last few years on M Ikea forever, but like target I know over the past The past little while has kind of ued their selection of IKEA like things, I guess So there's still a lot of selection there, but that would be interesting if there's a way to know that effect on the furniture plac. It's a good summer project for me. I really want to know more about Facebook Marketplace. so stay tuned. But I did want to touch on Lowe's really quick because they're actually on their fourth consecutive quarter of positive comps, which is really surprising in this environment. You know, what's your read on low's right now? What's working for them Yeah. so what we saw from Lowe's is that roughly sixtycent to sixty five percent of the revenue is DIY. And they're saying the DIY market has been a little more difficult for them where they are seeing strength is in they are seeing some strength in appliances and home services, but like also sales to home professionals, like contractors has been really strong for them. and I'll go back to Home Depot for a second. They've made some significant acquisitions in this category They bought a distribution firm. they bought They bought SRS distribution, which sells supplies to roofing, landscaping andool pool pros. You know, Wowes has also seen a lot of strength in this category So I think that's like in the same way that ad businesses are cushions for retailers like we saw with Target earlier in this conversation. The proro business is another place where where retailers are couching and especially in home. home improvement I'm trying to get into like these more pro businesses. Lowos is done. I think I've written about them doing like a pro loyalty program. They've done a lot of things for the pro customer in the recent period as well A lot of different side hustles, I guess. These retailers are getting into to improve their st or improve their financial standing kind of away from the traditional brick and mortar Side hustling just like us normal folk out here. That's a great comparison. But no, I think you're dead on. You know when it comes to what's next for these retailers, in lieu of any housing market miracles and major swings that happen, it's going to be diversification, right? It's going to be diversification of the customer leaning in on some of their strongest, most reliable and loyal customers which are people who are building for their business, people who are using their services for contracting purposes. So I think that's going to be really strong for them I'll also be interested to see what happens in the next few quarters. I'd like to know how many of the giant skeletons Home Depot moves this year. That would be fun to see. Yeah, and this also made me think of something going back to Walmart, something Walmart is doing. Walmart is getting into like the plumbing and electrical business, which is sounds quite bizarre. Oh yeah, fun story you did a couple weeks back. Yeah. Like it it was super fun. I feel like I feel like it just wasn't p much attention to, but I was like my eyeballs were like poping out of my head on that one where's like we have another thing that could be as like as big of a change for them as advertising. If this thing grows and you can have Walmart Do the electrical and plumbing work for the businesses around their neighborhood U that could be a huge business for them going forward and it's just very similar going it's very similar to what's going on. att Home Depot and Low's, where they're trying to get into these pro categories. they're trying to be more of a B to B enterprise business. U you're seeing that all around retail. that's not exclusive to home improvement. that's everywhere that everyone's trying to find higher margin businesses to get into I love that. I think that's a really sharp insight and something that we're gonna to continue to see. And yeah, great plug for a fun story that you did on Walmart sort of using its store operational expertise to offer things like plumbing and electrical services to small businesses. I mean, listen, they have an amazing store fleet. It's insane, the amount of square feet that they operate. They must be pretty good at something It just makes me think about how As individuals, sometimes we look at our skill set and reassess and say, hey, what can I monetize here? It's a very like elder millennial ethos that I feel like they're exhibiting right now. This is a self improven bodcasting All right, well, I'm going have to cut you off there before we get on a tangent, but Mitchell, thank you so much for coming on and sharing your expertise with us today. Always a pleasure. Thank you for listening to this episode of the Modern Retail Podcast, a show by Digitay Media. If you haven't already, please subscribe and head to Apple Podcast to leave us a review and a rating. If you want more from modern Rail, you can find us at modernreetail. co. You can find me, senior reporter Melissa Daniels on LinkedIn and Blue Sky And you can also subscribe to our LinkedIn newsletter at the mododern Rate Tale profile. We'll see you next week