How discount stores are carrying the retail sector

While consumer spending has remained relatively strong through inflation, retailers have struggled to stay relevant, with Macy's (M) announcing it will shutter 150 locations. Discount retailers like The TJX Companies (TJX) and Burlington Stores (BURL), however, have held up as consumers seek sales elsewhere under the pressure of inflation.

JLL Americas President of Retail Naveen Jaggi joins Yahoo Finance Live to discuss the state of retail and the consumer, as well as the success of brands like Burlington.

He discusses Burlington's recent growth and how it relates to the consumer: "Today, they're opening over 60 stores a year and they're taking 50, 60, 70,000 square feet in some places. To me, I'm watching that entire sector and saying where the US consumer is shopping, that's the sector I want to watch because that tells me where we spend our dollars has the most sustainability in the long run and today more than ever, the dollar value sector is grabbing a more lion's share of the US consumer than ever before."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video transcript

AKIKO FUJITA: Some of America's best known retailers are struggling to stay relevant in the last month. Macy's announced it's closing 150 stores despite this retail openings outweighed closures last year, and consumer spending has held up. Naveen Jaggi is JLL America's president of retail, joins us here on set. It's good to talk to you today.

We were talking about this morning, about when you think about where retail is headed, a lot of department stores may be looking for a smaller footprint, more localized footprint. Talk to me about what it is that you're seeing in this environment.

NAVEEN JAGGI: Well, I think what we're seeing is a big shift in the way consumers spend, right. So the days of the big department store anchored malls have a place in America, but we don't need to see as many of those big department stores because consumers have found a way to find what they want at a much closer location to their home.

And it's not surprising if you think about the way Macy's is saying that their future growth is in the 30,000 square foot space. That's what they claim, that they're going to have a big effort in that level, which says to them, look, we know that there's Burlington, TJX, and those kinds of brands that are capturing a lion's share of the US consumer dollar, more than ever before. That's where they can use their scale and their buying power to meet that demand.

So, it makes good sense for them to pivot. And as we also saw from Nordstrom's. What have they said recently? Nordstrom's rack is the biggest brand for them to drive their growth. They've taken their focus off the Department store. So the Department stores have a place, but I think the reality is more of these value oriented retail spaces in the 30,000 square foot space makes the most sense because that's where consumers want to go.

JOSH LIPTON: Are there any, when you look across kind of the retail landscape, are there certain names that you pay more attention to than others, certain bellwethers that you consider for the sector?

NAVEEN JAGGI: Yeah, so, if we're talking about that one particular-- call it daily goods value sector, right, so if you want to talk about brands such as TJX and now Burlington. I mean, it's fascinating to watch a group like Burlington. Five years ago, Burlington was the Burlington Coat Factory. It was not really known as a value player against TJX or Ross. Today, they're having over 60 stores a year, and they're taking 50, 60, 70,000ft in some cases.

So to me, I'm watching that entire sector and saying, where are the US consumer shopping? That's the sector I want to watch because that tells me where we spend our dollars has the most sustainability in the long run. And today more than ever, the dollar value sector is grabbing a more lion's share of the US consumer than ever before. I'm watching that sector, whether it's grocery or soft goods.

AKIKO FUJITA: Is there something to be said also about the payoff that the buy in that you get at some of these discount stores in a physical store?

NAVEEN JAGGI: Absolutely.

AKIKO FUJITA: If you think about a Nordstrom or Macy's, you don't necessarily have to go into the store. I mean, I say that as somebody who shops online a lot, but when you go into a TJX store, you ultimately are going there to sort through things to be able to find the best value. I mean, that, is that a big part of--

NAVEEN JAGGI: The thrill of the find-- we know that TJX, for example, will go out and find a lot of these very high demand department store type of product, but you can get a much smaller location. So the thrill of the seek, the search, the find, that makes it the adventure. None of those brands have a very large presence online. They have somewhat of a presence, but they actually want you to come inside.

So, as opposed to buying a crock pot or buying a dress online through Macy's and picking it up, which is certainly right for a big part of the American public, the adventure and finding it at a value, that's what seems to work for a lot of Americans today more than ever. And that's why I think Aldi and other brands have done the same thing. Come to the store, find a bargain you won't find anywhere else for a limited time. Get it now before it's gone.

JOSH LIPTON: I want to get, Naveen, also your broad take on the US consumer right now. I think they've actually surprised a lot of people with just how resilient they are, but what are you seeing now, Naveen, and what do you see looking ahead?

NAVEEN JAGGI: Well, I think the US consumer has shocked everybody. Back in the holiday season, right, they were projected to do about 4.4 per year sales over 23, over 22-- 5.6% over year over year. That tells you this consumer is a lot stronger than everybody says. So to me, the US consumer will remain strong as long as we have low labor. So, right now unemployment level is what, 3.7, 3.8, right?

Wages are up, or at least better than they were five, six, seven years ago. So to me, as long as the US consumer feels strong, market is up, so therefore it wants to feel better than it did a year ago. All of this gives them confidence to go shopping. So, as long as the US consumer continues to shop, and they have shown no indication to pull back on shopping, we will see a healthy retail environment.

JOSH LIPTON: Part of that is also execution though, right. And when you think about it, I mean, the consumer is not all the same. And when you think about where the retailers have been, those that have been able to stay ahead are those that have really executed on very specific needs that the consumer has had.

NAVEEN JAGGI: So retailers-- the ones who've really got it figured out, which is to give the consumer what they want and execute it really well. So, we were talking about this a while ago with Lululemon. What a great brand. I mean, they've been on a run for the past three or four years. They're a hot streak, right. They execute what they have and what they make very, very well. They know exactly what the Lulu consumer wants.

And so what do we see now? We see Alo Yoga, Beyond Yoga. We see other brands coming in and trying to nip at their heels, but the ones who nail it really well, Dollar General and the Dollar Sector, they do it really, really well. There's many of these what I call brand killers. They execute so well. The US consumer is so loyal to them. They know whatever they do, the consumer follows.

AKIKO FUJITA: Loyalty certainly significant.

NAVEEN JAGGI: Absolutely.

AKIKO FUJITA: Naveen Jaggi, good to talk to you today. Thanks so much for joining us.

NAVEEN JAGGI: Glad to be here.