WEBVTT - Bloomberg's Shah on Home Improvement, Housing Trends (Audio)

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<v Speaker 1>This is taking stock with Bin Box and Kathleen Hayes

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<v Speaker 1>on Bloomberg Radio. All right, let's take stock of home

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<v Speaker 1>furnishings and the industry behind a company such as Home

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<v Speaker 1>Depot Lows, Tractor Supply, Lumber Liquidator is also going to

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<v Speaker 1>talk a little bit about the mattress industry. Seema Shaw

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<v Speaker 1>has our consumer discretionary analysts for Bloomberg Intelligence, providing unique

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<v Speaker 1>and real time research as well as context for a

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<v Speaker 1>variety of industries as well as markets and government factors

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<v Speaker 1>that have an effect on business. Our terminal customers can

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<v Speaker 1>access this function at b I go on the Bloomberg

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<v Speaker 1>Sema Shaw, thank you very much for being here. All right,

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<v Speaker 1>so where do where do you want to begin? I mean,

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<v Speaker 1>because I know that there were some retailers such as

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<v Speaker 1>Home Depot, Lows and so on, uh, that you want

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<v Speaker 1>to talk about and some trends it has to do

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<v Speaker 1>with them, well, just some tail winds you say, from

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<v Speaker 1>housing right So um, our thought right now is that

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<v Speaker 1>there's near term pressure on the home improvement segment from

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<v Speaker 1>the macro perspective that as you can see that in

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<v Speaker 1>the August US retail sales were building materials were down

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<v Speaker 1>one point for from the month prior, and I think

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<v Speaker 1>a lot of that has to do with just the

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<v Speaker 1>consumer is a little bit more cautious heading into the

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<v Speaker 1>election cycle and not really quite sure what's going to happen,

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<v Speaker 1>and I think that some of the other macro figures

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<v Speaker 1>are not telling the true story of how the consumer

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<v Speaker 1>really feels. But there are long term tail winds for

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<v Speaker 1>the home improving sector. The most obvious is the rising

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<v Speaker 1>home values and so people feel more comfortable investing in

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<v Speaker 1>their homes. And then we also have the fact that

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<v Speaker 1>most homes over six homes in the US are over

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<v Speaker 1>thirty years old, and more of the population of the

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<v Speaker 1>US is aging, and they tend to want to age

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<v Speaker 1>in place, so that often requires some sort of home renovation.

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<v Speaker 1>The biggest hold up right now is also that home

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<v Speaker 1>prices have appreciated so much that they are less affordable.

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<v Speaker 1>And that also that might help the home retailers because

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<v Speaker 1>or the home improvement guys, because you just might fix

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<v Speaker 1>up where you are because it's hard to move into

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<v Speaker 1>a new place. I just want to ask you to

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<v Speaker 1>to go a little bit deeper force because you said

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<v Speaker 1>something interesting, which is that a lot of the macro

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<v Speaker 1>indicators do not capture perhaps the real state of the consumer.

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<v Speaker 1>And I mentioned that only in the context of today's

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<v Speaker 1>UH consumer spending that spending was up to tens of

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<v Speaker 1>a percent, earnings were I beg your pardon, earnings were

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<v Speaker 1>up two tens of a percent, spending was flat. And

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<v Speaker 1>then also we got the University of Michigan report which said,

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<v Speaker 1>you know, things were doing pretty well. Right. Um, the

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<v Speaker 1>surveys have gone all over the place in terms of

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<v Speaker 1>how the confident the consumer is, but the macro data points,

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<v Speaker 1>I'm thinking about our participation rates in the job market,

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<v Speaker 1>how many people have actually left and are not looking

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<v Speaker 1>for a job, And then also what types of jobs

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<v Speaker 1>are you seeing, what type of creative job creation is there,

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<v Speaker 1>and if it is more part time, those jobs tend

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<v Speaker 1>to be less secure and pro worker productivity has not increased,

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<v Speaker 1>So even if more people are working, they're not being

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<v Speaker 1>more productive. And I think there still is a I

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<v Speaker 1>guess the headwind from what happened though eight where people

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<v Speaker 1>are a little bit nervous and I don't know very

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<v Speaker 1>many people that feel like they could walk out of

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<v Speaker 1>their job and get another one right away. So if

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<v Speaker 1>you have one, maybe you're focused on saving or paying

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<v Speaker 1>down the debt that you have and maybe just not

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<v Speaker 1>buying stuff. And I think part of it is also

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<v Speaker 1>a demographic change. The millennials tend to be broadly speaking,

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<v Speaker 1>less focused on stuff and brands and more focused on

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<v Speaker 1>um experiences, and they're into a shared economy. So that's

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<v Speaker 1>sort of a different way of looking at what is

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<v Speaker 1>the future of retail and how will the millennials shape

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<v Speaker 1>that going forward. Well, you also have at least some

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<v Speaker 1>some information from a Deloitte study. Correct. This Deloitte study

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<v Speaker 1>is about the holiday forecast, and the forecast is for

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<v Speaker 1>growth of between let's say three and a half to

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<v Speaker 1>four percent, And I guess your point is that maybe

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<v Speaker 1>a little bit too optimistic based on what we've seen

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<v Speaker 1>so far, and even the g d P numbers that

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<v Speaker 1>came out for two Q, they would have to see

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<v Speaker 1>a huge acceleration in the back half in my mind

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<v Speaker 1>to see that, and just generally it's not proven. But

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<v Speaker 1>the way that Q three and back to school sales

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<v Speaker 1>tend to go is how holiday often is. And from

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<v Speaker 1>the retailers we've seen that I have a little bit

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<v Speaker 1>of a delay in their reporting, doesn't sound like things

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<v Speaker 1>were all that robust in August and September. Well, have

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<v Speaker 1>you even said that. Let's say that you had a

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<v Speaker 1>view of the market and you said that it was

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<v Speaker 1>doing pretty well. And the stocks. I mean, if I

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<v Speaker 1>take a look at Home Deepot, the shares down about

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<v Speaker 1>two and a half percent so far this year, uh

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<v Speaker 1>lows a stock down five this year. If you take

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<v Speaker 1>a look at it from a perspective of buying them,

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<v Speaker 1>you're buying that you would be buying these things at

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<v Speaker 1>you know, a twenty multiple. Is that considered to be expensive?

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<v Speaker 1>I mean I made relative to I think that the

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<v Speaker 1>home improvement retailers probably trade out a premium compared to

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<v Speaker 1>the SMP. But if you looked at the home furnishings subgroup,

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<v Speaker 1>you'd probably see that they've come in a lot. That

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<v Speaker 1>segment has been hit a lot harder one from the

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<v Speaker 1>softening consumer, in my view, and also from just the

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<v Speaker 1>rise of competition across the board, from the targets j C.

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<v Speaker 1>Penny's and Macy's of the world, and also from someone

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<v Speaker 1>like Amazon and Wayfair, which recently went public two years

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<v Speaker 1>ago and over seven thousand items on their website. Because

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<v Speaker 1>home furnishings tends to be less brand specific. I don't

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<v Speaker 1>know how many people can name the brand of their

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<v Speaker 1>coffee table. You just go and look. It's very visually driven,

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<v Speaker 1>and I think they're seeing a lot of share games

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<v Speaker 1>as this category moves online, so just quickly seem as so.

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<v Speaker 1>The companies that might be effected in this case are

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<v Speaker 1>things like what peer one imports restoration hardware Williams Sonoma right, Yes,

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<v Speaker 1>those would be the ones, particularly someone like a bed

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<v Speaker 1>bathroom beyond that tends to have less differentiated or unique product.

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<v Speaker 1>Peer one has their own style of product, but they're

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<v Speaker 1>still affected by us. Thank you very much for spending

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<v Speaker 1>time with me. Se Michelle is our consumer discretionary analyst

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<v Speaker 1>for Bloomberg Intelligence, and of course you can access all

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<v Speaker 1>of the Bloomberg Intelligence reports by just typing b I

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<v Speaker 1>go on the Bloomberg Thank you for listening to taking stockh.

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<v Speaker 1>I'm pim Fox. This is Bloomberg