UBS analysts spoke to consumers and found out a lot of them are being cautious about their spending. As a result, they are looking to maybe pull back their spending on things like clothing and accessories. UBS U.S. Softline and Luxury Analyst Jay Sole, who conducted the research, says "all the softline companies are going to be impacted." "What we're seeing is a broad-based slowdown... across all demographic groups," Sole tells Yahoo Finance Live. However, Sole says given that there has been a bit of an inventory build-up and that he expects demand will slow down even more, there could be more promotions for consumers to take advantage of. If you want to find out which companies Sole likes right now, watch the video above.

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Video Transcript

SEANA SMITH: New market research from UBS showing consumer demand for soft goods is weakening. Now, the investment firm bearish on clothing stocks due to a weaker spending outlook. For all things clothing, outerwear, and linens, we want to bring in the author behind that note, Jay Sole, UBS's North America soft lines and luxury analyst joining us. Now, Jay, it's good to see you. So you and the team were out talking to consumers, asking them about their spending plans over the next several months. What did you find?

JAY SOLE: Yeah. Well, thanks for having me on the show. What we found is that consumers are really feeling cautious. You know, they're still seeing a lot of inflation. You know, they're worried about things like having to repay student loans. And as a result, they're thinking that they're going to pull back on spending on discretionary items like apparel, footwear, and accessories. And we think that's going to be a headwind for stock prices.

BRAD SMITH: Yeah. I mean, certainly sounds like it, Jay. Who are some of the companies that could be most impacted by this in your purview?

JAY SOLE: What's interesting is I think that really all the soft line companies are going to be impacted, whether we're talking about department stores or brands or off-price retailers or mall-based retailers. You know, what we're seeing is a broad-based slowdown not just among say specific income demographic groups, but it's really across all income demographic groups. And really, everybody buys clothing. So it's something that we think is going to impact the group as a whole.

SEANA SMITH: Jay, are we going to see more promotional activity as a result?

JAY SOLE: Absolutely, for two reasons. Number one is that there's still too much inventory out there. I think retailers have been surprised by how slow demand has been already this year. And that's created a little bit of a build up of inventory. But then going forward, we think the demand is going to slow down even more.

So even though retailers have taken a more cautious view on the amount of inventory they've bought for the Christmas shopping season, they're still going to have too much. And when there's too much inventory out there, that leads to promotions and discounts because that's what retailers have to do to sell it.

BRAD SMITH: In your note, you talk about some of the companies with the best go-it-alone growth potential-- Nike, On Holding, Deckers. Walk us through the thesis there and how you're kind of defining this go-it-alone strategy.

JAY SOLE: Yeah. So that's a great point. The stocks we like are the brands that can really distribute their goods and sell directly to consumers, meaning through their own stores, their own websites, and essentially cut out the middleman. And that's a way to sort of increase profits and have a more direct relationship with consumers.

Brands like Nike have-- companies like Nike have invested, you know, literally billions of dollars to improve their direct-to-consumer business, to make their apps more appealing for consumers to shop at. And we think that's the wave of the future. We saw a little bit of rebound in store traffic the last couple of years as the world reopened after the pandemic.

But what we've seen during the back-to-school shopping season is that online sales growth rates are starting to pick up. We're starting to see that market share shift back to online. You know, we think that's the wave of the future. And that's how these companies that you mentioned are positioned. And that's one reason we really like them.