Telsey CEO: Prices to Keep Rising Into 2026

Key Concepts

• K-Shaped Economy: Divergence in economic performance between high-income and low-income consumers.
• Activation & Assortment: The importance of new product offerings and engaging events/promotions to drive sales.
• Retail Reinvention: The necessity for retailers to constantly adapt and rejuvenate their offerings, stores, and marketing.
• Off-Price Retail: The success model of retailers like TJX, Ross, and Burlington based on treasure hunt shopping and value.
• Merchant Leadership: The critical role of experienced merchants in driving product selection and brand strategy.
• The "A" Factors for 2026: Affordability, A.I., Adaptability, Advertising, and Assortment – key themes for retail success.

Consumer Spending & Economic Outlook (2025-2026)

The retail landscape in late 2025 is characterized by a K-shaped economy, where higher-income consumers continue to spend while lower-income consumers are more cautious and discerning in their purchases. Holiday shopping growth was around 3.9-4%, aligning with expectations, and promotional levels were also within anticipated ranges. Looking ahead to 2026, the key to driving appreciation will be a focus on “activation and assortment” – introducing new products and creating engaging experiences for consumers. Specifically, newness in apparel, like denim jeans and brown suede boots, is already showing positive results. Major events like the World Cup, Winter Olympics, and the “America to 50” initiative are expected to further stimulate spending, alongside anticipated higher tax refunds.

Pricing & Margin Pressures

Despite overall spending, prices are increasing across the board. A price tracker monitoring 80 different items (including brands like Barbie and Levi’s) since mid-April has revealed price increases due to sourcing costs and tariffs. These price increases are expected to continue into 2026 until the impact of the mid-April tariffs laps. While retailers have been able to raise prices to protect margins, sustainable growth requires strong top-line sales to leverage these higher costs. Better-than-expected revenue will translate to better-than-expected earnings.

Brand Reinvention & Success Stories

Several brands are demonstrating success through reinvention. Victoria’s Secret, Urban Outfitters, and The Gap are examples of “blast from the past” brands attracting both existing and new, younger customers. Brand leaders like Ralph Lauren, Steve Madden, and Tapestry are also performing well, effectively connecting with consumers through targeted marketing spend. The ability to quickly adapt to changing fashion cycles is crucial; missing a cycle can take a year or two to recover from. The resilience of established retailers, even those facing challenges like Saks, highlights the difficulty of completely eliminating a brand, though overexpansion or lack of desirable product can lead to trouble. The core theme is “reinvent, rejuvenate, and react.”

The Nordstrom & TJX Models

Nordstrom is showing positive signs of improvement, particularly with new brand acquisitions and enhanced customer service, including improved training and a more exciting retail environment following its move to become a private company. The TJX model (TJ Maxx, Marshalls, HomeGoods) is highlighted as particularly successful due to its “treasure hunt” shopping experience, extensive brand selection, and strong buyer-brand relationships. TJX is up almost 30% year-to-date, driven by extensive product availability and increased marketing investment. The difficulty in replicating the TJX model is attributed to the unique relationships its buyers cultivate with brands and its extensive store network allowing for strategic product placement. Nordstrom Rack is also noted as performing well in the off-price sector.

Amazon’s Role & The Future of Retail

Amazon’s strength lies in its seamlessness, service, choice, and speed. It’s described as a model of “essentials,” consistently offering competitive options within key categories like jeans. The future of retail is defined by five “A” factors: Affordability, Artificial Intelligence (A.I.), Adaptability, Advertising, and Assortment. Victoria’s Secret’s recent turnaround is attributed to the leadership of CEO Hillary Super, who focused on enhancing the product mix, improving bra selection, and adapting the marketing message to a wider audience, alongside store updates.

Lululemon & Nike: Brand Strength & Challenges

Lululemon, despite its strong brand identity and performance, has seen its stock decline by 45% due to founder Chip Wilson’s involvement and pressure on the board. However, the company’s healthy balance sheet, strong margins, and global expansion (particularly in markets outside North America) suggest it will survive. The key to Lululemon’s continued success is “enhancing the core” – updating existing products to meet evolving consumer desires. Nike is also undergoing a reinvention, with improvements in North America and a focus on leveraging the World Cup and Winter Olympics for international growth. Elliot Hill, with his 30+ years at Nike, is seen as instrumental in guiding the brand’s direction.

The Role of Physical Stores & Malls

Physical retail remains crucial, especially in a post-COVID environment, as consumers seek connection and socialization. Investment in stores and malls is essential to create experiences that foster memories. Malls are evolving to offer more than just shopping, incorporating concerts, food tastings, and fashion shows. While online growth continues, the growth rate in physical stores accelerated year-over-year during the recent holiday season, indicating the value of investing in brick-and-mortar experiences.

Consumer Confidence & Final Outlook

The consumer is described as “resilient and cautious.” While overall spending is expected to continue, it’s important to monitor the lower-income consumer, whose wage growth is lagging, and the impact of ongoing price increases. The speaker expresses cautious optimism about the consumer outlook for the coming year.