Trading down is a signal, and the beneficiary tells you how far it has gone

It traded at 105.08 this morning, +1.15% on the session. Value retail earnings are among the better consumer indicators available, and considerably more timely than the official data.

What the mix disclosure tells you

When a value retailer reports share gains among higher income households, something has happened to those households. They did not develop a sudden enthusiasm for the format. They are managing a budget that has become tighter than it was.

This shows up in company reporting well before it shows up in surveys, because it is measured at the till rather than by asking people how they feel.

The stages, roughly in order

• Discretionary categories soften while essentials hold
• Private label share rises within the same basket
• Basket size falls while trip frequency rises, which is people buying closer to need
• Higher income households appear in the value formats

Each stage is a bit further along than the last. The fourth one is the interesting signal, because it means the pressure has reached households with some slack, and those households have considerably more spending to redirect.

Why I like the value end

Because that redirection benefits a specific set of retailers and it tends to persist. Habits formed under pressure do not reverse the moment the pressure lifts, and the retailer that acquired a customer during a tight period frequently keeps them.

Trading down is temporary in theory and sticky in practice, which is the whole reason it is worth owning.

What would change my mind

The mix shift reversing, particularly higher income share falling back. That would tell me the pressure has eased, and the trade would be over well before the retailer's numbers turned.