SUNDAY, FEBRUARY 16, 2025
2/16/2025 6:00:00 AM
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Why Walmart Is Trading Like a Big Tech Stock
On WSJ’s Take On the Week, co-host Telis Demos talks with Aaron Back, WSJ’s Heard on the Street column editor, about the latest inflation report and what it could mean for the Federal Reserve. They also discuss upcoming earnings from Chinese tech company Alibaba and retail behemoth Walmart.
Later on the show, Telis talks about all things retail with Dana Telsey, CEO and founder of Telsey Advisory Group, a brokerage firm focused on the consumer sector. They chat about what’s behind Walmart’s winning retail strategy—from its inroads with higher-end customers, affordable luxury offerings like the viral “Wirkin” bag, and its e-commerce play. They also get into what’s going on with the luxury market, including with high-end juggernaut Hermès, Louis Vuitton parent company LVMH, Chanel, Burberry, and others. Before they sign off, Telis asks Dana: What’s up with Target?
This is WSJ’s Take On the Week where co-hosts Gunjan Banerji, lead writer for Live Markets, and Telis Demos, Heard on the Street’s banking and money columnist, cut through the noise and dive into markets, the economy and finance—the big trades, key players and business news ahead.
Have an idea for a future guest or episode? How can we better help you take on the week? We’d love to hear from you. Email the show at takeontheweek@wsj.com.
To watch the video version of this episode, visit our WSJ Podcasts YouTube channel or the video page of WSJ.com.
Further Reading
Walmart Is Retail King Again. Can It Keep the Crown?
Customers Are Quitting Luxury Brands as Price Hikes Go Too Far
To read more from our co-host Telis Demos, catch up on Why Tariffs Will Make Car Insurance Even More Expensive
For more coverage of the markets and your investments, head to WSJ.com, WSJ’s Heard on The Street Column, and WSJ’s Live Markets blog.
Sign up for the WSJ's free Markets A.M. newsletter.
Full TranscriptThis transcript was prepared by a transcription service. This version may not be in its final form and may be updated.
Telis Demos: Hey everyone. We would love to hear from you about what you think about our show. Leave us a comment on your favorite platform or just send us a note to takeontheweek@WSJ.com. Hey everyone, I'm Telis Demos. I write for the Wall Street Journal's Heard on the Street, and this is WSJ's Take On the Week where we give you a leg up on the worlds of money and investing. Each week we bring you conversations with insiders and from inside the Wall Street Journal's newsroom about all that good stuff. And this week joining me is my colleague Aaron Back. He's filling in while Gunjan Banerji is away. Aaron, welcome.
Aaron Back: Good to be here.
Telis Demos: Aaron is the editor of the Journal's Heard on the Street column, and so we've worked together a ton over the years.
Aaron Back: Indeed.
Telis Demos: This will not be our first conversation about markets, but it might be one of our most interesting. The hot topic. Let's start with what is trending this week. Inflation. The CPI report came in this past week and inflation, it's not slowing down anymore. What is going on?
Aaron Back: Yeah, so inflation came in at 3% up from 2.9% the prior month. Not a big difference, but the story here I think is for a long-time inflation was coming down, it peaked around 10% and it was slowing, but for several months now it's basically been stuck around 3% and that means that the Fed might have a hard time justifying cutting rates from here.
Telis Demos: So the last report, the December report was, I think that the headline number was 2.9% year-over-year growth.
Aaron Back: Yep.
Telis Demos: Now it's at 3% as of January, so not a huge pickup, but the wrong direction.
Aaron Back: So the Fed's target is two and for a long time they can make the case that it's moving down towards two, but it's been around this level for several months now at three. So it doesn't appear to be coming down anymore.
Telis Demos: Well, what's interesting to me is though the market's reaction initially was negative, it really hasn't derailed the bull market, which is what you might think would've happened given past history about how the market feels about how many Fed cuts are coming, right?
Aaron Back: Yeah.
Telis Demos: Usually the market is very bearish when it doesn't feel like the Fed is coming in with additional cuts. I mean, it seems to me, look, investors are greedy. They're still hoping for a big kind of fast growth deregulatory Trump agenda that will lead to more M&A that will unleash financial services and other industries. So it just doesn't seem like people are ready to give up on that.
Aaron Back: Yeah, that's right. And so far the tariff news hasn't been terrible. It's been on again, off again, and that's the one thing that could maybe derail this whole thing but hasn't yet.
Telis Demos: Yeah, yeah. Yeah, it seems like the market is still kind of in the mode where it thinks that what President Trump says about tariffs are more a negotiating tactic than this is actually the policy. But speaking of tariffs and China, I want to bring up a Chinese company's earnings that are coming up in this coming week, and that is Alibaba. I feel like that's a company we were talking a ton about a few years ago, but it's fallen off the radar a little bit. But Aaron, I know you're following that one closely. Why?
Aaron Back: Yeah. Well, there's been a renewed interest in Chinese tech stocks since this whole DeepSeek thing, which was, of course, a Chinese AI that appeared at least to make a lot of advancements on the cheap. And so since that news, Chinese tech stocks have rallied. Alibaba's up around 37% so far this year.
Telis Demos: Wow, okay.
Aaron Back: But that's particularly notable because a lot of these stocks were kind of dead money for years. There was a Chinese sort of regulatory crackdown on the tech sector. Those stocks were deeply out favor for a long time.
Telis Demos: And that's been true kind of across the Chinese market. I mean last, year the Chinese Stock Market, the CSI 300, one of the main indexes, had a little momentum, it was up like 15%-ish in 2024, but that was after several years of falling.
Aaron Back: Yeah, so a lot of the Chinese tech stocks are listed in Hong Kong or New York, not in the Mainland Shanghai index. That's a lot of state-owned enterprises and things like that in the Mainland indexes. So that's not really benefiting yet from this rally in Chinese tech stocks. But that's another reason why the Alibaba earnings may be interesting because their main business is this domestic e-commerce marketplace, Taobao. And so that'll give a read on the Chinese consumer who has been suffering for years from lower property prices and just a generally weak economy. So if the Chinese consumer is doing a little better, that would be a good sign for the broader Chinese market. If it's more of the same sort of struggling Chinese consumer, then not so much.
Telis Demos: Interesting. And, of course, the Chinese consumer is not just important to the Chinese economy, but to the global economy as well. I mean, they're buyers of imported goods from all over the world, especially in the luxury market, they've been a huge part of that. And speaking of retail, I wanted to also move on to one of the big things coming up in the coming week, and that is Walmart's earnings report. Walmart has reclaimed its crown as the king of retail lately. What has been going on with that stock? It's gangbusters, isn't it?
Aaron Back: Yeah, so Walmart is up around 80% the last year. It's trading like a tech stock and they're really the king of retail right now. They're gaining share in sort of high-end consumers, low-end consumers. They're doing well in e-commerce. It's maybe the biggest success story in retail right now.
Telis Demos: Is it something about the consumer or is it something about their business, do you think?
Aaron Back: It's something about their business. I mean, they're trading at around 33 times forward earnings. That's a tech stock multiple. It's not a retail stock multiple. So investors are excited about Walmart specifically.
Telis Demos: And you mentioned their e-commerce operations.
Aaron Back: That's right.
Telis Demos: I mean that's something that I think we should look closely for any sort of news on how much of their business now is coming in through Walmart.com and some of their other kind of digital offerings. So interesting. Aaron, this has been great. Thank you so much for joining me to talk about what's hot in the markets this week.
Aaron Back: Yeah, my pleasure.
Telis Demos: We're going to pivot to a conversation that I had this past week about the state of the retail industry. Dana Telsey is joining us. She is the CEO and founder of the Telsey Advisory Group, and she joined us to talk about how the consumer's doing and also what's going on with Walmart and also the broader luxury market and maybe whether Walmart is the real winner in retail these days. After all, if people aren't splurging on luxury goods and they're also paying 53% more for eggs than they were a year ago, yeah, that's a real number, that's from the Consumer Price Index, the January CPI, then maybe the basics are the sweet spot right now. So we're going to take a break and after we come back, let's have that interview with Dana Telsey. Today, it's great to have with me here, Dana Telsey. She is the CEO and founder of Telsey Advisory Group. Hi, Dana. How are you? Welcome.
Dana Telsey: Hi. Thank you so much for having me.
Telis Demos: Tell us about what is Telsey Advisory Group? How would you describe it?
Dana Telsey: Telsey Advisory Group has been around for nearly 20 years. We are the consumer research firm that basically covers all of consumer along with having a banking and asset management arm also.
Telis Demos: It's a great time to talk and I'm interested in now talking about the retail earnings season that's coming up. We have some big company earnings like Walmart and Target as well as just lots going on about the state of the consumer and in particular, I want to drill down a little bit into what's been going on in the sort of luxury market.
Dana Telsey: So just a little bit to frame it. Overall, what we saw during the pandemic is a real increase in luxury goods sales, partially because in the US, the stimulus payments that aspirational customers got, they didn't have anywhere to go, they were spending on luxury goods. Then fast-forward, pandemic kind of ends, luxury goods soar, and you saw many of the brands taking price increases. Some of them were definitely consumers rebelled and are not really accepting of the price increases and others where the exclusivity of the product makes the difference. Today, where we are is-
Telis Demos: Is so the fancier more expensive product you had, it was almost like you had more pricing power because-
Dana Telsey: You did.
Telis Demos: ... you had something that everyone wanted and they couldn't get anywhere else
Dana Telsey: And there's not enough supply.
Telis Demos: What's an example of that? What's an example of something that raised its price a lot during the pandemic?
Dana Telsey: So Hermès raised its prices, even post-pandemic, and it continues to be more demand where the double-digit sales increases are continuing.
Telis Demos: Hermès, the like a luxury French-
Dana Telsey: You can't access the goods because they don't produce enough. On the flip side, you've had others, potentially like the Chanels of the world, raise their prices almost to try to be similar to Hermès, but you're not getting the same reaction. And then you've had other brands in the luxury world, and a lot of these European luxury, where they may have raised prices, they don't have the same upscale nature in terms of price points that an Hermès has and the fact that the Chinese aren't traveling like they used to.
Telis Demos: Chinese consumers are not. Okay, yeah, yeah.
Dana Telsey: The Chinese consumers are not buying. That's been the impact of the LVMH as the world. So all of a sudden what you're seeing out there is the luxury world sales growth is moderating from what it had been, and you're still not seeing the consumer from China traveling. They're spending within China and potentially even on some local brands from China.
Telis Demos: So why has Walmart though been the sort of the superstar stock of the past year? I mean their shares are up way more than pretty much any of the other major players in shopping and retail and among the luxury brands and stuff like that. As people stop that kind of spending, are they doing more of Walmart type spending?
Dana Telsey: So a couple things in Walmart. First of all, they're really have a diversification of where they get their revenues, whether it's the Walmart discount stores, whether it's Sam's, keep in mind 60% of Walmart sales are grocery. So the essential spend that you have there, people are going there. In addition, for them where some of their highest growth has come from is some of their higher-income consumers. The ability of to get what you need when you need in a convenient format matters. Target is more discretionary than Walmart. But the other area that you've seen grow significantly is off price. TJ Maxx, Ross Stores, Burlington, brands at value prices matter, and you're certainly seeing companies like the off prices delivering that while Walmart's delivering value and essentials and really stepping up their pipeline of what's new and interesting. We still have work to do on Target because they're typically known as where they have collaborations that are very appealing on discretionary and there's more that's coming there.
Telis Demos: Yeah, I want to ask more about Target in a second because I think they're very interesting. And you mentioned Walmart having growth at the higher end of their consumer base, and so there are a couple of things that have been going on with Walmart that really fascinate me that I want to see if you can help explain what that might mean for investors. One is the Walmart+ membership I feel like has become a very successful product and it's sort of ubiquitous, right? So Walmart+, of course, is like a subscription kind of like Amazon Prime, many people are familiar with, and what's interesting to me about Walmart+ is that it really seems to be aimed, again, at both people who are on government assistance like EBT, they can get a Walmart+ deal, right? But also I know that American Express offers it, right? So you have consumers really at both ends of the spectrum kind of coming together and saying, "Yeah, we see value in Walmart+", which, of course, gives them access to the e-commerce as well as other things. Seeing those two barbells of the consumer succeed with that product, what does that tell us?
Dana Telsey: I think overall you can see higher-income consumers gravitate for the essentials. There is a convenience to having physical stores attached to the online sales too, both in terms of delivery and in terms of returns, and it shows the awareness of the Walmart name to consumers of all income levels in all regions. The data that Walmart has allows them to accelerate the community bond they have and really learn what should they be offering that consumers want. Marketplaces matter, the diversification of their sales and where they get it from is making them more essential to all different income and age groups of consumers.
Telis Demos: Marketplaces, you mean where lots of sellers can sort of sell goods through one website?
Dana Telsey: Yep. Where you can reach the most consumers.
Telis Demos: What has Walmart been doing to appeal more to higher-end or to wealthier customers? I know I've read a little bit about their sort of private labels and things like that. What else have they done? CEO, Doug McMillon has said that they're really making inroads with high-end shoppers. What's been behind that?
Dana Telsey: I think the awareness and the marketing, I think the physical store locations, I think the loyalty programs, the essential nature of their goods, the ease of shipments that they've been delivering, they've been on time, and they really showcase that this is not the Walmart of 30 or 40 years ago. Look what they did in their name. They took away the name Walmart stores because they're all channels in terms of appealing to the consumers.
Telis Demos: Yeah, the e-commerce seems like they've really succeeded there. And again, a few years ago, people would've said, "Oh, nobody can compete with Amazon," and yet here they are.
Dana Telsey: They can.
Telis Demos: One episode for Walmart recently that I want to get your thoughts on is the "Wirkin" bag social media moment. And it brings in a couple of themes. One, the sort of the dupe sort of theme in luxury, and I certainly don't want to call this particular product a dupe, but I'll just explain to people who weren't following it. There was recently a bag for sale, like a purse for sale on Walmart's website from a third-party seller, and it sufficiently gave kind of Birkin bag, the Hermès thousands of dollars bag. It sufficiently gave Birkin vibes that people flocked to it as an affordable alternative and it went viral on social media. People were TikToking about, it got a nickname. The bag is not called the "Wirkin", it's called something else, but people nicknamed it that. I also saw a couple of times the "Walmés" bag as well. What does that anecdote tell us about what's going on in luxury? And also, so it's got the e-commerce angle there and are people sort of dropping down from the... They're like, "You know what? I don't need an Hermès bag. I'll get this "Walmés" bag.
Dana Telsey: So imitation is always the most sincere form of flattery, and definitely the Hermès buyer who's buying that bag, that, as you said, is thousands of dollars, is not trading down to the "Wirkin" bag. The awareness of it. It gives others who want to view that style and that type an opportunity to access it at a much lower price. There's no need for a Hermès to even make any comments on it because when you look at other styles where there are interpretations of what is popular at higher price points, that's what this is doing. If anything, it only creates even more awareness of Hermès if it's a bag and a style trend that should be emulated. But what it also shows is you have value that matters, it is garnered a wider appeal. Social media has fast awareness that goes global and you're seeing trends be able to be deciphered quickly. I wouldn't necessarily say the Birkin is a trend given how long it's been around.
Telis Demos: Exactly, exactly.
Dana Telsey: It's been a desired item, not only by the wealthy, but those who aspire to have it also.
Telis Demos: I mean, I feel like that the Birkin bag and Hermès exist really at the very highest tier of luxury, right? I mean these are things that can cost many, many thousands of dollars.
Dana Telsey: And are even more valuable on resale.
Telis Demos: Exactly. So it's an heirloom item. So let's put that maybe in its own little tier. But I want to talk about what's going on in the rest of the luxury market. And that can include companies like Burberry, Kering, which owns Gucci, LVMH, which is, of course, the parent of Louis Vuitton. These companies have a more maybe diversified sort of luxury strategy where they have the very highest end and then a little bit of what you might call affordable luxury kind of micro luxuries that have been a little bit cheaper. What's going on with that market and what happens to people who don't necessarily have their Hermès' cachet but are still considered luxury?
Dana Telsey: So there's always that aspirational consumer who wants to be in that lifestyle. Yes, we had a slowdown in luxury sales recently, and we just actually put out a primer on luxury and are expecting an increase in luxury sales this year. We've had-
Telis Demos: Okay, so you think it was a short-lived slowdown maybe?
Dana Telsey: Yeah.
Telis Demos: Okay, okay.
Dana Telsey: It may not be at the same rates that it had been, but it should grow. And when you think about the lifestyle selling of luxury brands from entry points in cosmetics to high end, whether it's ready to wear jewelry or leather goods. But what's changing lately, we have a change in designers for some of them, a change in management teams. We have a customer base that's changing and also where they're opening stores. Many of these European luxury goods companies want to open stores in the US. Take a look on Fifth Avenue where there are these Louis Vuitton trunks that are on 57th and 5th where they're redoing their building. It is probably one of the most Instagram pictures and photos that's out there.
Telis Demos: That you see people always stopping.
Dana Telsey: You're seeing restaurants put into some of these luxury goods stores where there's waiting lists, so access to entry in the brand. Also, we're seeing in some cases, outlet centers. You look at Woodbury Commons here in the Northeast, you look at Desert Hills on the West Coast and they'll have entry points to luxury goods from the luxury goods brands at discounted prices. So styles value, but there's always a demand because of the aspirational nature that people want to interpret from others who they admire.
Telis Demos: If I'm driving past the strip mall and I see a Gucci sign, should I be thinking, "Uh-oh, they're going down market, time to sell my stock."? Or should I be thinking, "Wow, they've grown their audience here."?
Dana Telsey: They're controlling their customer base. It's less than 10 malls that they could open in. So that's what I mean. It's not ubiquitous.
Telis Demos: Got it.
Dana Telsey: But also wouldn't you rather have that than be shown in third parties?
Telis Demos: Yeah.
Dana Telsey: And some don't even ever discount their goods because they will reuse some of the materials and make it into something else?
Telis Demos: Yeah. I do have to talk about Washington and policy, and I know that tariffs are something that obviously matter for retail and luxury in particular, and import business, right? We're talking about European goods, European companies selling to China, Chinese consumers shopping in the US, et cetera. What does that mean for retailers and for how consumers might kind of feel the effect of tariffs?
Dana Telsey: It's a headwind. Tariffs are a headwind. They're a headwind to companies. The accelerated diversification of supply chains costs money and the element of increasing prices to the end consumer, which we saw last time, is a headwind and it's a concern.
Telis Demos: We're going to take a little break and when we come back, we're going to have one last question for Dana Telsey. Welcome back. So we talked a little bit about Target at the top of the show. We talked about how Walmart has been really going gangbusters lately. Their stock has been doing great, they're doing terrific with both the sort of the more kind of price-sensitive customer and the higher-end customer. But let's go back to Target. Target was once synonymous with kind of affordable luxury, right? You mentioned discretionary spending. Tar-Jay was the nickname I remember. But now it's struggling. The stock is not doing as well. It just seems to have lost some of its momentum of late. In 30 seconds or less, tell us, do you see a Target comeback in the near future?
Dana Telsey: Yes, I do see a Target comeback in the near future because I think the discretionary spend is getting more appealing for them. I think they're doing more innovative projects, doing more enhancements in their stores. I think it's going to make it more interesting as we go through the next year.
Telis Demos: Okay. A target for investors to consider. Dana, thank you so much for being here with us. This has been a great conversation.
Dana Telsey: Thank you so much for having me.
Telis Demos: Thanks so much. And that's everything you need to know to take on your week. This show is produced by Trina Mannino, Michael LaValle, and Jessica Fenton with help from Jess Jupiter. Michael LaValle and Jessica Fenton are our sound designers, and Michael also wrote our theme music. Aisha Al-Muslim is our development producer, Scott Saloway and Chris Zinsli are the deputy editors, and Philana Patterson is the head of news audio for the Wall Street Journal. For even more, head to WSJ.com. I'm Telis Demos.
Aaron Back: And I'm Aaron Back. Until next time.
Telis Demos: Alliterating anchors anxiously await. Okay. All right, here we go. Does anybody get that joke? I always do that. Broadcast News, any big fans?
Aaron Back: I wasn't listening.
Telis Demos: Don't worry about it.
Aaron Back: What was the joke?
Speaker 4: Say it again.
Telis Demos: Broadcast News, Albert Brooks.
Aaron Back: I don't know what you're talking about.
Telis Demos: Never mind. |
