If there has been any constant down the aisles of supermarkets and on the racks at clothing stores, it’s inflation. While inflation has started to cool down, the reality is that prices continue to be high — and that remains a key issue for consumers.

Some retailers have fared well against this backdrop, namely Walmart (WMT). Others like Macy’s (M) and Best Buy (BBY) have struggled as households cut back on non-essential items. The issue of inflation will take center stage with voters in the November presidential election and could weigh on retailers until the race for the White House is over. So what’s the best retail investment strategy during this political news storm? Yahoo Finance Executive Editor Brian Sozzi discusses it all with investor, retail expert, author and partner at Wall Street Beats, Jeff Macke.

Video Transcript

Welcome to the latest episode of opening bid.

I am your trail guide, Brian Sazi A K A, the executive editor here at Yahoo Finance.

Now, let's make some money and get a lot smarter, very special guest on today's episode.

I don't even know where to begin with him.

Uh He's an investor author, retail expert and Wall Street Beats partner, Mr Jeff Mackey.

Jeff, did I get all the titles?

Right.

I'm an experienced trader.

I got about eight more.

But you tell me I'm Methuselah, man.

I'm 100 and five years old.

We can talk about whatever.

It's, it's basically, there's nothing you could list that I probably haven't done at least a little bit of.

But, hey, it's great to see you, man, including hosting you on some of your earliest appearances ever in broad.

Could you can you, can you let me bring this stuff up, man?

I mean, I was gonna bring this up before we get gone.

I mean, the quick back story is uh I'm gonna call you the founding host of Yahoo Finance Video back in 2011 here.

Really getting the uh the show going?

You essentially pluck me out of obscurity and show me how to do all this on air stuff.

So to you, Jeff Mackey, I'm just gonna say a quick thank you.

Uh And welcome home.

You have not been on Yahoo Finance since February 3rd 2015.

And what you don't see here, actually, uh Jeff, his opening bit is taped in front of a live studio audience which is the Yahoo Finance newsroom and a friend of yours, Pros Superman is standing on the other side of the camera waving to you and saying hello.

I mean, you have a lot of friends here.

Still here, Jeff, you got a lot of friends.

Look at that.

That's the Jeff Mackey pop.

I'm like the Road warriors.

The crowd is going crazy.

Let's, let's get, let's get this popping because I could actually do this all day.

Um out of all the podcasts that I've done.

Uh I am the most nervous for this one because you did in fact, show me lots of the skills that I'm using in here for this one.

And let's start on consumer but to really begin, I think on, on consumer stocks.

I know you follow this stuff religiously you have for as long as I have known you, I think people need to understand you a little bit.

Your dad essentially founded the modern day Target.

Maybe that's not the correct wording, but take us through a little bit of his story because I think it sets the ground for why you're so passionate and you've become an expert in all things.

Consumer.

Yeah, it's from a practical standpoint, that's about 70% of GDP.

So I figure I can work backwards from it.

The consumer is touching it.

I can understand it.

And if they aren't, I'm just not that interested, but beyond that I grew up in Targets.

Now, there are a few families whose, you know, claim that their, their father or grandfather, whoever was part of the, the origins of Target, but really target Walmart and Kmart all started the same year 6162 with the same base idea.

The suburbs are exploding.

We need to have some stores out there and, and discounts the thing.

So my old man and I, we would go out on weekends and we would shop targets and we, we, you know, it's, he just was, was an absolute maniac when it came to kind of obeying the plan.

What makes a good target, what kind of vibe they want, what kind of kind of mission statement they're going for?

And, and at the time, it was a controversial idea, but it was sort of rich people in the suburbs like deals too.

And so you keep a clean store, we respect the customer and you give them what they want and a little more so, and that's gonna be a good business model and that remains true.

So, you know, my dad's been gone for a while now, rest his soul.

But these fundamentals are, are timeless, you know, and that is simply you got to respect the customer and if you do and you've got a good product, you're gonna figure it out.

You know, it's a matter of staying in the saddle.

You know, what's wild target used to be a small division, essentially 49 stores inside of a, a department store.

Uh, it's Dane Hudson.

Most people they won't even know that.

Oh, yeah, that was, that was my dad was there.

Jeez Prem, Mary Tyler Moore.

He, he came up from Drake Book Night.

It was shortly after, after they, they found a Target.

But before that, it was, it was the Dayton Brothers and they owned Dayton's department stores, which was largely just two or three stores.

I think that one in Rochester, one in Minneapolis, they built out that whole Minneapolis area.

They were really visionaries and, and a lot of credit in the Dayton family.

Um, my dad was only the second guy who was an outsider to become CEO of the, that was in 94.

But before that, he really made his bones at Target.

You know, none, none of the up and comers there wanted to be part of the department stores.

They always saw that, you know, Target was going to be the explosive growth animal.

Uh, you know, it's hard to say what would have happened if it would have been a free standing company right from the jump just the way Walmart was, uh, you know, Kmart at the time and one of my favorite kind of retail, Kmart was the biggest retailer in the world for exactly three months.

The guy who founded it, Kres just was like, I just want to be the biggest in the world.

I want to take out Sears and he did for 1989 for like one quarter.

And then Walmart passed him right away and just left him in the dirt because Kmart didn't give a crap about where they put their stores.

But yeah, it, it's anyway, my, my blood runs pretty deep with that and I can kind of bore the people with tears but the, the fundamentals remain the same and it's just not over delivering for customers.

Did you ever want to be the CEO of a retailer?

You know?

No, there's kind of, I mean, it's, it's, you know, it's, I've been on boards, I've been kind of involved with them.

The best CEO s of retailers are guys who come up through the entire organization and, and, you know, I worked for Macy's years and years ago, straight out of college and, you know, that's a grind and, and you never struck me as the guy that's gonna pull the shirt.

I just can't see just f clothes.

I, I suits and shoes for Macy's.

I was putting shoes on men's feet in like 1993.

And if you want to get them out of the retail industry, that's a different podcast.

It's a very different podcast.

It's also a therapy appointment or two.

For me, it's a little ptsd.

It, it wasn't the most glamorous or pleasant job in the world, but I can still fit a suit.

I can still take my son and say, you know what, you're, you're a 44 long kid and we're gonna go buy you a 44 longer.

And I've taken the waist useful talents that you don't get to use all that much anymore.

But, you know, you, you used to have to work the stores then.

And so I was there for, for Macy's bankruptcy, which is the first of many, they might be headed there again anytime soon.

Uh You know, but it, it's just kind of seen that huge consolidation in the department store space.

That, that's a dying breed.

The discount stores still chug along merrily.

All right.

So I'm gonna, let's switch to some consumer stocks and retail stocks.

I'm gonna try to put into practice everything you taught me here, Jeff, I'm gonna do very, I'm gonna try very hard also to not write lists in real time because everybody loves the list.

So let's start on Walmart and Target Walmart Stock this year on fire, crushing it every single quarter, ripping it apart, advertising business, rocking, same source of sales rocking.

Target.

Not so much.

What is going on here and what is the best bet into the back half of the year?

Of course, we have the holiday season.

But, oh, yeah, uh, we also have a presidential election, you know, the presidential election, it's Democrats and Republicans and in my platonic ideal of a discount store they can get along just fine.

And in fact, I really think that that's important.

It just so is theologically speaking, but it, it's, everyone should be able to shop.

I'm not worried about the election.

I'm worried about Target, getting its act together and, and you know, but they have to do, they have to do a few different things.

One of which they're already done a year ago, as you recall, they were just in a political mails storm and on the front page of every newspaper in the country you're managing to just kind of take everyone on either side of any political spectrum off their comps are gonna be great is how that boils down to.

But what they've got to do to get to the next level is build out that target circle.

And that's really where Walmart has separated themselves.

You mentioned the advertising business, they're going into club memberships and, you know, as well as I do that discount store model is a single digit bottom line business.

So for every buck you spend, they're lucky to make a nickel out of it.

Now, if you can add some really heavy graph top line revenues to that club store with the Costco Model.

People always complain to me.

I, I'm long all three of those and, and, you know, so I'm bragging about Walmart and Costco.

I'm little Costco's Jeff.

I just went to Costco.

I'm picking up Tomahawk, Tomahawk steak, man.

I mean, we're talking about 4 of freaking meat for about 40 bucks.

I mean, target's not selling that and I think that's part of the problem.

I mean, you're going to Target, I can't get all of my shopping for food done.

I'm not surprised I'm not wowed.

Where's this stuff at?

Target?

Uh Why are they not getting this message?

They've been on their back foot for, for a while.

The shrink hit them, huge, hit them, huge, hit them really hard.

And, and if you're the friendliest discount store that it was not a set up that, that kept them kind of prepared for that rampant shoplifting sort of spree that we had if you will, the, the, the man that it was the, the media kind of downplayed it a lot.

But, you know, again, low margin business, if you're losing four or 5% of your product, you know, one place or another, and we're seeing where it's fence, fence in third market, retail parties on online.

And so what you created was this enormous fence operation for people who can sell kind of stolen product.

And that made it just too lucrative to steal and you combine that with what society went through or we're not going to prosecute anybody and, and, you know, some of the errors were, were unforced.

That self check was just one of the great debacles and retail history.

The idea that, that people can just be trusted to check themselves out of stores.

You can shocker.

You can't, oh, I'm not gonna check myself out.

Not take six items.

Yeah, it's great.

No way to see how that's gonna bite you in the ass.

You know, and, and so you get people who wait in the long line and then they go up to let them out to do a glorified ATM machine and it doesn't work quite as much and they end up with just a lot of the bottom of the car shrink.

It just walked out the door.

So they're gonna, that becomes a tailwind in the back half.

It's, they've all been a little sheepish about the number because there was no upside.

And again, a year ago, Target was in an argument over whether or not shrink really existed and, you know, at that point they're taking heat because they're, they're being accused of faking these numbers and, you know, again, the margins are so razor thin that it doesn't take much to have it be a huge operational drag and a margin drag.

So, Target had to lock up a lot of product.

They're carrying less inventory.

They made a shopping experience less pleasant for people and they have fewer goods in stock, all of which is a super huge problem if you want to be someone's convenience store and, and you know, with the, with the margins, with Costco, what makes them so great?

Why they can have the Tomahawk steaks is because you can try the memberships out of people's cold debt and the caskets and the caskets, you can take a lot of risk, man if you're making a billion and a half dollars and it just goes straight to the bottom line.

Your cost for that is essentially printing plastic cards.

That's great.

You know, and, and your stores are set up that no one can walk out without the product as you're checking I DS at the door that gives you a lot of latitude in terms of how you're going to market that.

And you know, it, it's with Walmart in a similar vein, you know, that, that margins that they can take in, you get a couple of billion extra dollars, a few billion extra dollars and it scales really well and allows you to do things that the other guys can't.

So targets building that up.

That's where the upside is about.

Jeff.

Hang with me.

We're gonna go for a quick break.

Don't go anywhere.

We got a lot more retail and consumer to talk with one second.

All right, welcome back to the latest opening bid.

Uh We're talking to investor author, retail expert, experienced trader Wall Street beats partner, Mr Jeff Mackey.

So Jeffrey, we're talking a little bit about that battle between Walmart and Target.

I'm gonna check on that for a minute.

I, I want to talk a little bit about a gamestop.

Um I know this is a situation you've been following a lot.

Uh I've been getting absolutely destroyed on X because of pieces that I've written about this company.

I still approach gamestop.

Jeff, as you can imagine.

From a fundamental perspective.

I don't know.

I was an analyst for 10 years and wow, I read financial statements but it's totally detached from that reality.

What is your read on gamestop?

What do you think happens next and why, uh, you know, it's a dump truck of a company, to be honest, it, it's, you know, five years ago, I was actually long, I had my kids accounts in it.

I owned it when it, when, when, you know, it was the $4 stock.

I didn't know who roaring kitty was, but I figured that you could manage this business a little better than the guys that were in charge then and you could.

But the problem is that the things just got out of control.

I had no idea why the stock spiked the way it did.

So I sold at 25 and I thought I was freaking just the genius of all time.

It went up to a split, adjusted what, $5 billion or something insane like that.

And I, you know, but, but so it's not making sense from a business perspective a while ago.

It's a totally different company now.

And so what happened the other day when, when, you know, the roaring kitty guy came out and 700,000 people myself included, sat there and wondered exactly how much micro dosing he'd been doing and, and what the definition of micro might be.

You know, it, it's his, his notion that, you know, I've done no research on it.

I just really trust the company that falls flat to guys like you and me because that hasn't really worked.

He says this company's garbage.

Uh, but it doesn't matter, it doesn't seem to matter anymore.

The 10-K does the anecdotes to the people he brought in to, to kind of fix up.

You, have you ever been to a cave stop?

It's so dreadful.

It's like Billy, there's like no lights in these stores and there's over 4000 of them now.

No, it's, they're, and they're pack away in the mall where like the news stand used to be and the shoe Polish guy.

And it's just like, this is, this is probably not a growth industry and, and they're selling cassettes.

So it's like Bob, you know, it's like, it's the house of VCR rentals and, you know, in a, in a modern world, they never figured out how to go online.

And, you know, it just as a retailer, it's nothing now where it becomes interesting.

It's an $11 billion company.

Ryan come to his credit was smart enough to, to kind of monetize that.

Now, the cynical way of looking at it is he is exactly the type of fat cat that was pilloried and made so much fun of, and there's kind of, we're gonna stick it to the man with our diamond hands, things like they're really gonna give it to him, huh?

And you, you think that's the w because that doesn't seem like the, so, so let me, so, so what, so what is the traitor in?

You think?

You pull up a chart wherever you get your charts from nowadays, Jeff Mackey, what do you see in the chart or you just say, you know what, I'm not gonna be involved with the stock because it's totally detached from any form of reality.

God, it's catnip.

No pun intended.

I mean, of course, you're gonna pay attention to it.

How could you not?

But it's not a retail store anymore.

What it is now is just, uh, it's gonna be a holding company.

Uh, what I'm really interested in is, is last December to not much fanfare.

Gamestop said that Rincon has full discretion over running gamestop's cash.

Now, you know, that, that was never an issue when they were just a failing retailer.

But what this bubble and, and, you know, part two as well.

Did, was it allowed them to kind of fix up their balance sheet and, and accumulate some cash?

They've already sold almost a billion dollars worth of stock since this started in May.

They filed to sell 75 million shares, which is just Bonkers at the time.

That would have been like four or $5 billion.

Then $11 billion market cap company with kind of garbage retailers that lose a little bit of money, but they don't matter anymore because now it's a holding company.

And so it, it's kind of bs your half way for so or said more nicely, Berkshire Hathaway for people who just have a ton of confidence in Ryan Cohen's ability to look out for them and, and you know, be be the steward of their capital, all of Berkshire Hathaway.

Now the difference is Ryan Cohen is not much of an investor as far as I actually challenged him, Jeff.

I actually, so our big conference here at Yahoo Finance is November 12th.

It's the Invest conference.

You're of course invited Jeff, but I actually challenged Ryan Cohen in my column last weekend uh to come debate me at invest.

Uh Why does he like this company?

Why is he holding seven minute earnings calls or in some cases?

No earnings calls?

I mean, I think he has a whole world of investors that have shown some form of confidence in him and doesn't he owe it to come out here and explain what he is doing or maybe it's just me, maybe he owes nobody anything.

Uh, he would, you know, you've got to earn the right to not owe anybody anything so far.

What he's done it is, you know, he had, he just a bunch of sketchy kind of options based runs at companies that he's taken in the past.

He's got control of gamestop.

He, he made that run, he made some $60 million personally not for Gamestop via uh bed bath and beyond with what looked a little like a pump and dump.

It technically wasn't, but it just kind of smelled like a little bit that's different than running $5 billion of cash for Gamestop.

Now, what you should challenge him on is less if Gamestop itself is a turnaround story as a retailer because frankly, it's not, that's kind of a short debate.

It, it, you know, you, you just kind of look at the numbers like you say the 10-K speaks for itself.

But the question is whether or not he can manage that money and find other compelling values.

Because if he can, that's where the Berkshire Hathaway model kicks in Berkshire Hathaway was just a failing textile company that Warren Buffett turned into a holding concern.

That's what the super duper duper crazy argument is, is that he's gonna be able to take whatever they sold out of that $75 million ATM appropriately called at the money transaction, sales share sale opportunity.

If you raised a bunch of money, you're gonna talk about a company with 3 $4 billion cash.

How he's going to put that to work and frankly, kind of the worst option available is putting it back into gamestop.

I mean, it, it's gonna be whether you can find other things to buy.

Let's let's go to another retailer and it was interesting.

I went back into a lot of the segments.

We did way back when I think this is like 2012.

So at the time I, I had spent a week visiting Starbucks stores.

This is when I was still an analyst and I would just sit in these stores, Jeff for hours writing notes down, taking things down that I saw that seem weird why there's so many steps between the cash register and the coffee pot, whatever it was.

I was just really in a different point in my career and I was trying to understand what was wrong with Starbucks.

And you had had me on and we broke down, what was, I think, like three problems that Starbucks was brewing up.

And I feel as though we're back at that point.

Some 12 plus years later, here's a company, Starbucks pulling in lots of money.

But I mean, the sales are under pressure.

Uh, that's despite mobile ordering the prices for products gotten too high and you're not getting any clear answers for management on how they're going to turn these things around except to say we're coming out with a new energy drink.

What do, what do you see is the problem with Starbucks?

And when does that stock, what has to happen for that stock to work again?

Yeah, I think that the stock may be a little washed out in the near term.

It, it's, I kind of called it on Wall Street Pizza, which we were talking about before that.

This was a company that just needed to warn and, and they've lost their way in a few simple ways.

But really what it comes down to is is it's an antiquated business model.

They have way too many stores that people are supposed to hang out in.

Starbucks doesn't want people to hang out and no one's gonna hang out there.

The days of the starving screenwriter hanging out all day, your Starbucks are gone.

You know, they sold me a good lunch.

If they sold me a good lunch, Jeff, I would sit in Starbucks, but the reality is I'm not sitting in Starbucks who's doing that.

It's Howard Shultz always spent 35 years trying to sell people food.

No one wants food.

Nobody wants to Starbucks.

No, no, I had my daughter buy Dutch fros, which is just, you know, Starbucks for kids.

But what they've got that Starbucks is desperately trying to are all kind of those things that they did.

They just give me the Gober loses.

They used to call them that thing where you, you know, it's, it's like a mochaccino wrap of whatever with like eight different pumps of grenadine in it.

You know, finally an 800 calorie caffeinated beverage that I can, that I can choke down.

You know, I love none of them but you go there and the lines are out the door, the margins are fat.

The, the demand is incredible.

The young people are there.

All the things that Starbucks is desperately trying to do and is not very good at.

So at Starbucks, you're retrofitting, what is just supposed to be five different kinds of coffee and different sizes into all these spectacular custom drinks.

And that's not what they're good at.

But you're not, you're not, you're not down for the coffee, you're not down for the coffee at Starbucks with the olive oil in it.

Jeff.

I mean, that doesn't excite you not, you know, it doesn't excite me is being forced to use an app and then have that app not work to actually make purchases.

And then I go there.

I mean, the last conference call, almost 20% of the people that use the app don't complete the order.

So they're, they're equating the app with, with kind of this customer loyalty program.

You want to make me disloyal, just screw me on the app, maybe tap my way through 50 different screens on your app.

And then I'll show up and my coffee is not there.

That's a huge raging problem.

That, that's a problem.

No matter how you look at it, like we talked about under promising, over performing.

That's the opposite.

You promised me, I would buy a coffee for $7 and now it's not here.

I don't have an unlimited amount of time.

People want in and out, they want the drivers, they want to go real quick and they want to kind of get their beverage and, and Starbucks has lost their way on that.

I think that if they just focus on execution and stop the initiatives.

My God, the, the double pump, triple wrap around initiatives that they're doing.

I mean, it's run by consultants and Hawkers, it's not the way you should run a consumer company.

Ok.

So uh we're running out of time here, Jeff.

So this is what I got down.

If you dig Costco kind of dig Walmart.

Target's got some work to do.

Feeling Dutch bros, not feeling Starbucks in the last minute and a half that we got.

Can you maybe inspire a little bit the next generation investors?

How do they become a successful trader?

What's the one thing that you look for when you wake up in the morning to make that great trade?

I want the guys eating off the dying corpses of the big installed companies, the two trades I've been working this year.

Anybody but Starbucks, anybody but Nike will those trades work forever.

Probably not.

But in the meantime, you've got hoka boot stomping with kind of both hugs and running shoes, taking market share, taking shelf space away from Nike.

You have, you have on holdings, you know, which is a goofy little Swiss company.

But everyone talks about the threats to Lululemon on holding is so much farther down the road than Diori or Halo because they're actually kind of getting installed into these foot lockers of the world and they're taking share, find an old company that you don't like and see what it's being replaced with.

The consumer doesn't go anywhere, they just move around and people are gonna win like we're addicted to caffeine America is plenty stoked up and ready to feed themselves.

Who wins when Starbucks, who wins when Nike loses.

If you want to get excited about something, stick it to the map in the real way.

You want kids to be excited about investing, take an old company.

This is grandpa's company.

I'm gonna find grandkids company.

I'm gonna make money from that, Jeff uh Macky.

Um We're out of time but I will just say this as they say in WWE now, Jeff.

Um You still got it.

Uh Thank you for uh making time for uh opening bid for me personally.

Uh and, and showing me the ropes.

Uh All these years, Jeff Mackey, follow this guy on Twitter Wall Street, beats investor, author, retail expert.

Uh just an all around good guy, Jeff.

Thank you so much.

Thanks, man.

It was great.

All right.

And that's it for the latest episode of opening bid.