Shelley E. Kohan (00:03)
Hi everyone and thanks for joining our weekly podcast. I’m Shelley Kohan and I’m thrilled and excited to have back R.J. Hottovy from Placer.AI You are the head of analytical research. Welcome.

R.J. Hottovy (00:17)
Thanks, Shelley Thanks for having me.

Shelley E. Kohan (00:19)
It’s great having you back here. And you actually have spent a lot of time in the retail industry. I think it’s over 20 years, e-comm, retail, restaurant. And you also have a background. came from Equity Analyst and Strategist for Morningstar, William Blair & Company, Dutch Bank. So you got a lot to offer today.

R.J. Hottovy (00:25)
Yeah.

Yeah,

I hope I do. I mean, we want to say that experience helps in this industry, but it is so fluid. you know, honestly, this has been one of the more dynamic years that I can remember in retail, at least going back to, you know, if we exclude the pandemic, at least going back to 2008 and the Great Recession. I don’t know if I’ve ever seen consumer behavior shift, in, week out, day to day, hour to hour, like I’ve seen this year. So it has been really interesting to watch. You know, thankfully, Placer, we have the luxury of having visitation data that can give us effectively real time data on what’s going on.

It’s been a very interesting year and a lot of people trying to figure out what’s going on.

Shelley E. Kohan (01:15)
It’s so true too, and as we are going through the pandemic, I remember saying to myself, it can’t be any more challenging than this, but yet here we are. I think it’s been a pretty challenging year.

R.J. Hottovy (01:25)
Yeah, I…

Yeah, it really has. And I don’t think we ⁓ at this point have anything called a normal year. Everybody keeps waiting for that year. The next year is going to be more normalized. Next year is going to be things back to back to normal. And I’m not sure that that ever is going to happen again. I think ⁓ there were a lot of things that we certainly saw a pull forward in demand during the pandemic and certain retail categories benefited early on and then have been kind of struggling to recapture that. But I think there were a lot of structural changes throughout the coming out of the pandemic. lot of retail categories change permanently.

Maybe it’s home improvement because we’re using our homes more often, working from home, those of us who still do that. Maybe it’s a category like fitness, which has changed quite a bit, and people are working out more, and there’s healthier and better lifestyles. And so I think that if people are longing for the days of the way it used to be in retail, I’m not sure it’s going back that way. And I think every year you almost have to prepare for a new normal at this point.

Shelley E. Kohan (02:22)
It’s so true, RJ It’s kind of like the new normal is unnormal. It’s just… And I have to… I know you won’t do this, but I will do this because I’m allowed to do this. I have to plug, we just did a Placer AI webinar in early November. So if our listeners want to go back and take a look at that and ⁓ see what’s happening in very specific categories, it was great. We had Elizabeth on, so that was a lot of fun.

R.J. Hottovy (02:26)
Exactly.

Shelley E. Kohan (02:47)
But let’s get to our topic today. So we’re going to try to touch on three big topics today. We’re going to talk about Walmart’s big news. I know you have a point of view on that. We’ll also talk a little bit about shifts in consumer behavior. And lastly, we can’t leave without talking about holiday 2025. So it’s kind of tough not to. All right. So let’s start with Walmart. What are your thoughts about the big, big announcement of Mcmillan’s retirement and what do you see happening there?

R.J. Hottovy (03:04)
We’ve to talk about it.

Yeah, I think honestly this is probably something that’s been in the works for a while. mean, Doug’s had that position for a while, this point over a decade. I think this is probably part of a planned succession. And honestly, I mean, think it’s a well-deserved break for him, to be honest. And he’s obviously still going to be affiliated with the company, still going to be on the board for a period of time. But if you look at everything that Walmart’s accomplished in the last decade, they’ve really become a global power in terms of e-commerce. They’ve really changed the overall business.

in lot of ways, ⁓ you know, kind of followed in lot of Amazon’s footsteps, things like, you know, ⁓ Walmart Plus being kind of their own version of Prime, getting more into retail media, ⁓ becoming a really interesting marketplace business for a lot of companies too. And I think that’s a lot of ways, know, ⁓ if you think back a decade, I mean, the assumption was Amazon was going to be the zero-sum winner. They were going to take over the retail landscape. think Amazon or Walmart’s made a very

and they’ve done a lot of great things. so in terms of the next steps for Walmart, mean, I they’re in great hands. They’ve got a deep edge. They’ve got a great leadership team. ⁓ So I think a lot of the things that we saw the last couple of years I think will continue to see accelerate under the new leadership.

Shelley E. Kohan (04:36)
I think that’s so true and it’s so funny Robin Lewis, who obviously is the founder of the Robin Report, he and I, I swear to God, going back 10 years, we would argue back and forth about Amazon versus Walmart and who’s going to be the big player and the sales and all that. And I have to say, wow, Walmart has really come to the table with a lot. So what do you think they have to do to close that gap with Amazon and e-commerce?

R.J. Hottovy (05:00)
Yeah, I think it’s gonna be interesting to see. I mean, think one of the big things that is going to be on my mind is kind of that retail media. I mean, if you look at kind of what’s given Amazon so much flexibility in terms of the they do, it is that advertising business. I remember a couple of years ago, know, it really is probably like six or seven years ago when advertising was probably less than like 3 % of Amazon’s overall revenue. But you can see a pretty clear path. That being somewhere in the 10, 15, 20 % range of its overall

Shelley E. Kohan (05:07)
Yeah.

R.J. Hottovy (05:30)
profitability. Yeah, I think that’s kind of my thought for Walmart too, is if given their reach and not just in the U S and not just the, you know, the Walmart brand, obviously Sam’s club, you know, that’s a lot of potential for that retail media and that can be a highly lucrative business that allows them to do a lot of other things too. You know, that can build out that marketplace business that can get them, you know, into potential, some other categories, things like that. I think that’s going to be the really interesting story is kind of on the, on the advertising front. think a lot of retailers are,

realizing how powerful and how meaningful that can be. And I think that is going to be the exciting part in the years ahead is that retail media front. ⁓ The other one too is that the club business has been a big winner this past year. Sam’s Club and Costco both have done a really good job and BJ’s too. don’t want to leave them out because all three are doing exceptional in our minds. And what’s interesting about that too is you’ve seen that higher end consumer, so kind of that a hundred thousand and above ⁓ customer go more to Walmart. Well, with the clubs it’s a little bit different.

on is they’re actually attracting a lower income audience right now but it’s largely just kind of younger professional consumers that’s who’s been really gravitating towards the club channel right now so that’s going to be your younger millennial families, older Gen Z’s that are just starting to form families but that’s been where a lot at least based on our ⁓ trade area demographic data that seems to be the biggest driver of growth for some of those club channels so big opportunity Sam’s Club as well and honestly it’s probably some of the other brands that we’re not thinking about. Walmart

Shelley E. Kohan (06:34)
and

R.J. Hottovy (06:59)
is quietly has done a really good job kind of optimizing its store footprint, maybe closing up locations that are not as irrelevant of spots anymore, and being mindful of where people move to. with all the migration that we’ve seen across the United States, particularly the Sunbelt region too, it’s going to be a real interesting fight among retail, restaurants, consumer brands in those markets as well.

Shelley E. Kohan (07:19)
So I want to go back to something on retail media networks. originally, was one of my top, I always do five big trends every year. One of them was the explosion of retail media networks. But originally, when retailers first started really getting into it, like right around the pandemic, it was more about creating a revenue stream. Like, how can I create another revenue stream? But now what’s happening is they’re actually using the data and analytics to learn even more about their customers. So it’s kind of for me.

R.J. Hottovy (07:37)
Mm-hmm.

Shelley E. Kohan (07:47)
just exploded into this great data source for the retailers. And I know like for Walmart, when you think about what that can do for the physical footprint of a store, I mean, my gosh, that’s your area of expertise. it’s gotta be helping that, build that foot traffic to the stores too.

R.J. Hottovy (07:57)
Yeah.

You’re right. mean, the focus with retail media a lot of times is on the revenue growth, adding a new revenue channel, adding a new profitability lever for the company, adding a new source of free cashflow. But at the same time, you’re right, I think that data is valuable. And if you think about how that consumer experience has changed in the last couple of years and how, you know, what retailers are winning and which retailers are not, I think a lot of it comes down to kind of understanding, you know, at even the store level, who those consumers coming in. There’s a lot of discuss about, you know, tailoring,

each stores assortment or at least kind of each regions assortment for that customer. And I think that’s kind of what consumers have come to expect that if I’m going to spend the time to go to that retailer, I mean, I’ve got options online, but if I’m going to go to that retailer, I better feel like they’re waiting on me hand and foot. Maybe that’s a bit of an exaggeration, but at the same time, I I think that they go in and, hey, this assortment is just not what I want. Or there’s out of stocks. I if you’re like me, I go to a store and that thing I went to go buy is not there.

That damage my relationship with that brand. And so I think that’s going to be really the key at this point. I think so data and understanding that I like to think that plays a part in our data as a part of this as well. But I think that’s going to be a big part of kind of that, that next move for a lot of retailers and making sure you get things on a local level. mean, I’ve said it before, mean, retail, physical retail is not dead, but bad physical retail is. And I think that’s really where you look right now. The winners are the ones who are continuously innovating, bringing new products.

products

and excitement to their stores. They’re staffing their stores appropriately. I think that’s been overlooked a lot too, is that you gotta have the right amount of staffing in your stores. ⁓ It may be costly, but it also is what keeps people coming back. That’s what drives loyalty and frequency. And same time, being competitive on pricing. And so you think about all that. think Walmart certainly is one of those ones that’s doing that in this environment. And I think a lot of it, ⁓ it’s not everything, but I think retail media’s had a big part in that.

Shelley E. Kohan (09:45)
Yeah.

Yeah, definitely. So what do you think Furner’s top three objectives are coming into the role? I mean, he’s been around for a while, but what do think he’s going to really focus on?

R.J. Hottovy (10:13)
Yeah.

Yeah, I don’t think John is, you right now there’s going to be any major disruption. ⁓ Certainly he’s going to want to put a stamp on his tenure there as well. ⁓ But, you know, effectively, I think the first one is going to be navigating just kind of what continues to be a very competitive environment. I Amazon’s certainly still a major player, not going away anytime soon. You know, with new leadership at Target too, with Fidelky. I mean, I think we’re going to be looking at, you know, what are their moves and how does Walmart position themselves for a counterpunch, if you will, here? ⁓

as Target starts to kind of reinvigorate a lot of things they’re doing. ⁓ This is an environment where consumer preferences are changing so fast. So I think just being able to weather what has continuously been a difficult ⁓ and dynamic consumer environment, I think is probably step number one. Step two, think retail media, that’s got to be something that’s at top of mind for the company. And I would extend that.

not just retail media, I think just the overall advertising business itself. There’s a lot of other avenues outside of retail media that could also take. And then beyond that too, I think is really just kind of, you know.

More so than anything else, it’s kind of just the whole balance between Walmart and Sam’s Club. I do think that that is a big part of the growth story here too. think Sam’s Club, there’s a lot of opportunity ahead there in making sure that business is given enough capital and enough leeway to kind of continue to find and compete in this market.

Shelley E. Kohan (11:41)
Yeah, I agree. think the other thing is that you have to like think about, know, Walmart was one of the first retailers, if not the first, to majorly come out with the agentic Commerce with their big announcement. So they’ve always been kind of forward, more forward than they’ve ever been like 20 years ago. So I’m sure he’ll focus it.

R.J. Hottovy (11:51)
Yep.

And I think that, yeah,

that’s a big part of that. first part is that, you know, in an evolving consumer environment, I think AI and a lot of the tools that are coming to the market at this point, that is going to be what helps a lot of the retailers stay ahead of those trends too. And ⁓ short attention spans these days among consumers, ⁓ those product cycles and what people are looking for change quicker than ever. And I think that’s going to be a major way for retailers to stay updated and up to speed with what consumers want.

Shelley E. Kohan (12:24)
Definitely. And I find it interesting. I’m sure you know this, but ⁓ you talk about the competitiveness of Walmart, Amazon, Costco, and those are our three largest retailers in the US, taking up a substantial percentage of overall sales here. So it is getting very, very competitive, for sure.

R.J. Hottovy (12:42)
Yeah,

very, very competitive. And what’s been interesting about those groups too is that I would say really since midsummer, we’ve seen a lot of the high end consumers doing well. They continue to shop, you know, kind of more luxury department stores and fine dining and things like that. Low income consumers have generally settled pretty much with dollar and value grocery. It’s that middle income consumer where we’ve seen a lot of changes the last several months. And I think Walmart’s been a beneficiary. They talk about gaining share of a hundred thousand and above.

seeing a lot of change in dynamic with that group too. So I think that’s where a lot of that battleground is going to take place. And those retailers that have generally historically catered to that middle income consumer, think Walmart, Costco, Amazon, or Squarely, that is a group they’re focused on because they know that group is feeling pinched right now and they know they’re in a good position to satisfy from both a pricing and a product assortment standpoint what they need.

Shelley E. Kohan (13:36)
Yeah, definitely. And I think the other thing that’s a little fun fact, putting on my teaching hat here, the three companies that are in the top three spots, so Walmart, Amazon, Costco, one’s a physical retail store for the most part. The second one’s an e-comm mostly only platform. And the third is a warehouse club. So you have three different segments all competing. That’s all indirect competition competing with each other. So I find that really interesting. ⁓

R.J. Hottovy (13:42)
you

Shelley E. Kohan (14:04)
Okay, what can we see in terms of shopping behavior shifts for holiday? What are you seeing? What do you think’s happening out there?

R.J. Hottovy (14:11)
Yeah, I I think I kind of front run this a little bit in my last answer, but, know, it is interesting because we have seen this bifurcation or K shaped economy or, know, I’ve heard a number of other phrases to use to describe it, but, you effectively what we’ve seen is that that high end consumer, which generally speaking, they take their cues from, you know, the wealth effect, how they’re feeling, are they feeling like they’re, they’re well off and with the stock market where it is and with housing market generally holding up pretty well and interest rates coming down for, ⁓

you know, lot of different purchases and things like that. That group is feeling pretty good. And again, we see it in kind of those categories that generally have more exposure than high end consumer. Those are outperforming. Those are up generally on a year over year basis. ⁓ We’re seeing really good traction among some of these. So that consumer is feeling pretty good. And what I’m expecting, you know, for that is that to continue into the holiday season. A lot of that, you know, that well-affected, know, admittedly, there’s a lot of variables between now and the holiday that could change that.

geopolitical and otherwise, but you know for the most part at least you know with you know kind of six weeks out That group should continue to spend you know that low-income consumer is generally feeling pretty pretty stretched from a household budget standpoint Very deal driven very price focused and so I think that one’s gonna continue to be motive that group is gonna be continue to be motivated by deals and discounts that middle income group is is where a lot of the change is happening and that group has all the sudden started to trade down from kind of special

Shelley E. Kohan (15:12)
you

R.J. Hottovy (15:41)
retail and fast casual restaurants and things like that into more affordable options whether that be value grocery you know Aldi and Trader Joe’s have had monster years and I think a lot of it comes back to you know not just competitive pricing if everybody’s lower their prices ⁓ not everybody would win you you also have to have innovation and I think those guys have done a great job on that front with their private label assortment it just allows more flexibility in terms of

different things that they’re doing. The All Fresh Channel, TJ Maxx and Burlington and Ross have all done a really good job. mean the numbers are just phenomenal there. I mean they have benefited from some of the store closures that we’ve seen out there and just better access to merchandise. But you know all all said and done here what the holiday kind of says to me right now is that we’re probably gonna look for a pretty solid holiday. I think if you’re looking kind of year over year we’re looking for some growth in terms of both visitation and retail sales. ⁓ I think that we are going to see

Shelley E. Kohan (16:12)
you

R.J. Hottovy (16:37)
probably that higher end consumer and let’s call it that’s probably 200,000 in household income and above is probably going to contribute more than they did last year in terms of that overall sales. But what I think is interesting too is that lower middle end company doesn’t want to feel left out. There certainly is a demand to

make purchases and to visit. It’s a group that’s feeling constrained by inflation and macro uncertainty and potentially ⁓ volatile job market. But maybe they shift to smaller ticket purchases. think categories like beauty should end up probably doing pretty well because, ⁓ or even ⁓ just things that you can, I want to participate in this holiday but I want to do it in ⁓ a cost-cautious fashion. And so I think some of those categories where smaller ticket discretionary items could come into play allows that lower

middle-income consumer to play in the holiday and participate in the holiday. So I think that’s kind of where we stand with things. The other thing that’s been interesting to watch too as we kind of look to the holiday, one of my favorite factoids and stats from last year was that malls ended up doing better in terms of visitation than the retail stores did. So that indicates that people are interacting with the malls differently than they had before. It’s not just a place to go to shop. And so the idea being is there’s a lot more entertainment and attractions and things.

and services that ⁓ malls offer and I think that’s going to be the other takeaway this year is we may see crowded malls but not everybody’s there to buy something. They may be there for other things and events and attractions so that could be the other interesting development continuing from last year, ⁓ you 2025.

Shelley E. Kohan (18:12)
Well, here’s another little fun fact that will help your whole idea on mall traffic, and that is, know, Gen X, which I like to call the forgotten generation, no one cares about us, no one studied us, no one did any of all this stuff to try to get our attention, but all of a sudden now, we’re a tremendous part of that purchasing power. And so there’s been a shift in wealth going to the Gen Xers, and guess where Gen Xers are? Comfortable shopping in malls. So, um…

R.J. Hottovy (18:40)
It’s actually it’s funny. I we’ve been looking at terms of visitation trends It you know this kind of idea that you know people are coming back to malls is you know It’s taking place, but it’s broad-based. I think you’re absolutely right on the Gen X side But I also think younger generations You know are coming back to you know that we’ve had a couple of conversations lately about you know kind of the the Teenage mall hangout is back in a lot of cases so so Gen X not only Gen X But we’re going there to pick up our kids at the same time you know because

Shelley E. Kohan (19:01)
I can’t believe it.

R.J. Hottovy (19:09)
that’s

where they hang out and spend their time. I think what it does speak to is honestly, I do think coming out of the pandemic, people are looking for additional third place options. mean, historically that’s been Starbucks or coffee shops, but in a lot of ways, malls have become the new community center. And a lot of times, even if we’re not there to go to buy something, we’re there to go see, you know, some sort of holiday attraction or the Netflix experience or something else that may be going on at, whatever mall you, you go to, malls you go to. And so I think that’s going to be a big part and continue to

big part is that shift in tenants at the mall and maybe less so on the retailer but other things kind of taking that spot to kind of create excitement and you know and new news at the mall too.

Shelley E. Kohan (19:51)
I, well, first, RJ, you just gave me this massive flashback to my teenage years. my God, I hope hanging out at the ball doesn’t come back because I just had a bad flashback and my parents would drop me off at the mall and they’re like, why do want to walk around there for hours? Well, that’s what we did. Just let, you know, so that would be interesting. my God.

R.J. Hottovy (19:58)
Hahaha

Yeah, my teenage daughter is there already, so yeah, I think that’s the

current status quo we’re at these days.

Shelley E. Kohan (20:16)
Interesting. All right, so let’s talk about predictions. And so here’s a funny thing on predictions. I’ve been trying to advocate for many, many, many years that, you know, when you look at these predictions, they’re uneven. And part of their unevenness is because ⁓ different groups look at different sets of numbers. Is it November, December? Is it Thanksgiving to December? I advocate and have been advocating. You really have to look at October, November, December, because we all know holiday starts in October. You want to jump in here. I see it.

R.J. Hottovy (20:32)
Yep.

this year. think it was September.

I think September I think was even this year. mean with kind of what we talked about kind of this shift in middle income and consumer behavior that we started to see midway through the summer. We really did see a lot of promotions even started that late September. I it was as early as I’ve ever seen it. And I think a lot of retailers were really focused on capturing that sale. They knew that consumer shifting behavior they knew that consumer you know might not spend as much close to the holiday if things continue the way they were. They wanted to lock in that sales

Shelley E. Kohan (20:46)
you

R.J. Hottovy (21:14)
as possible. I saw some holiday emails come in as late ⁓ September this year. So you’re right. I think everyone’s got a different way of segmenting the holiday season in terms of what periods to measure. So I could even make an argument that we almost need to do the last four months of the year at this point. Probably not quite that much. But ⁓ certainly I think October has become a bigger part of the holiday period, particularly with the Prime Big Deal days and things like that, which did come back. I think about it. That came in a week earlier than it did.

Shelley E. Kohan (21:32)
you

R.J. Hottovy (21:44)
last year. again, people looking at all retailers, not just the big guys looking to lock in those sales as much possible. At the same time, I think the consumer, particularly that middle and lower income consumer, is going to buy closer to the events as kind of they have visibility and potentially try to play the game of chicken with retailers on that, you know, that big markdown of those promotions. So we’ll see how it shakes out. But I do think all things considered, we are going to probably still have a

positive ⁓ holiday season. think we’re going to see retail sales and retail visitations up. I do think again that higher income consumer is going to be an outsourced outsized ⁓ contributor to the overall ⁓ holiday season. But generally speaking, think people, the naysaying and doom and gloom, I think it’s going to end up being a pretty positive and solid holiday season.

Shelley E. Kohan (22:35)
Yeah, I’ve heard numbers anywhere from 2.9 % to over 4%. So those are the numbers. Yeah.

R.J. Hottovy (22:40)
Yeah, think somewhere in the middle. That sounds like

somewhere in middle. That sounds about right to me based on everything we’ve seen and based on trends. ⁓

Yeah, I think what’s interesting about this whole phenomenon too, if we kind of look, you know, obviously we do a lot of work on physical retail. ⁓ Right now we’re kind of looking at flattish traffic, maybe slightly up depending on the category. And so I think when you kind of look at those overall retail sales numbers too, so you know, kind of flattish traffic in store, traffic ⁓ up online, comparable online traffic up. And we actually look at visitation trends to ⁓ over four or 500 fulfillment and distribution centers across retailers.

well and that has generally been outperforming in-store retail as well. So probably you combine the two you’re probably talking about low single digit year-over-year visitation both online and physical stores and then you know a component you know low single digit in terms of you know price increases year-over-year just with inflation yeah I think that you can get to 3 % pretty easily doing that.

Shelley E. Kohan (23:37)
And I think that, so I’m excited because I believe this is the first holiday season we’re going to actually exceed $1 trillion for November, December, first time ever. So that’s exciting, right? That’s all growth for our industry. Okay, I have one last question. Yeah, I one last question for you. So eMarketer is, they do a lot of predictions with eCommerce and mobile, and they’re suggesting that eCommerce is going to be up 11.5 % and they’re saying that…

R.J. Hottovy (23:49)
That is. Yeah, that is.

Shelley E. Kohan (24:06)
of the e-commerce sales, 56.5%, so that’s tremendous, is gonna be mobile. So my question to you is, and this is what I teach my students in class, you can validate or say not so true, but that mobile, isn’t that the front door to physical retail now?

R.J. Hottovy (24:26)
In a lot of ways it is. And I think what’s interesting about kind of mobile and kind of the ripple effect it has with physical retail, ⁓ you look at almost every retail category, know, pre versus post pandemic dwell time is down. And some of that is, you know, byline pickup and store. But I think there’s more to it than that. think there’s an element that people are planning their trips better. They know what they want because they’re checking things out on their mobile device ⁓ before they get in. You know, I think a lot of times too, particularly in kind of the food retail

categories, people have been out there looking for deals, so they’re shopping across a wider number of locations, but buying less in those stores and spending less time in those stores. But I think that overall mobile technologies, both from the consumer standpoint, as well as the retailer side, those companies that have already started to use ⁓ AI to help out their sales associates on the floor, particularly in those more complicated categories, I think that’s been all the AI focus has been on how do we

interact with consumers online or just kind of, you know, with.

on their device at home, but I think how they interact with consumers in store has been ⁓ particularly AI making your sales force, your sales associates so much better. I think that’s kind of been overlooked and there’s retailers like Tractor Supply that are doing a phenomenal job on that. ⁓ But I think that’s kind of where you’re right. mean, the idea that mobile devices has really become the gateway. It’s changed the path to purchase. It’s changed the path to how we discover new products and brands. And it’s really changed the way we interact and shop.

with a lot of that and I think everything we’ve talked about today there is kind of this ⁓ ripple effect because of mobile devices everything we’ve talked about there certainly is a play for mobile devices that have kind of helped us shape where we are in retail in 2025.

Shelley E. Kohan (26:16)
Love it RJ, it’s always a pleasure having you on. Do you have any closing thoughts or anything else you’d like to say before we leave today?

R.J. Hottovy (26:22)
No just have a wonderful holiday everybody and I’ll see you in the stores here for Black Friday.

Shelley E. Kohan (26:29)
Love it. Thank you. Have a great day.

R.J. Hottovy (26:31)
You too.