Former Toys R Us CEO Gerald Storch has warned that a consumer recession is on the way and that “weak” retailers will suffer as consumers splash out less on retail goods.
In an interview for the Fox Business program “Varney & Co.” on July 12, Storch said that retailers feared they would be unable to get inventory into the country before the holiday season, so they ordered “just too much of everything,” which in turn has left the goods “sitting on the shelves” as consumers redirected their priorities to going out as opposed to staying at home.
“There is a consumer slowdown on the way. It is coming,” he said. “It isn’t terrible yet. It’s not like we’re in a consumer recession, but I’m afraid we will be soon given the overall macro conditions.”
The former Toys R Us executive said retailers will now have to recalibrate ahead of the fall season.
“I think we’re going to have a good fall for the strong retailers, but here we’re going to see the weak retailers start to really suffer,” Storch said. “We’re no longer in an environment where all boats rise.”
Storch’s interview comes as the White House is bracing for yet another hot inflation report on July 13 when the Labor Department releases the consumer price index (CPI) report for June.
Inflation Expected to Rise
Experts forecast that the U.S. annual inflation report for June will come in at 8.8 percent, up from 8.6 percent in May, with soaring energy prices likely to make for an even gloomier headline figure.
Other analysts believe inflation in the country may have peaked in May due to lower consumer spending, having gained just 0.2 percent, marking the smallest rise in five months as higher prices forced households to cut back on spending.
Costco Wholesale CEO Craig Jelinek warned on July 11 that while middle-class Americans are doing OK financially, people with less discretionary spending are struggling to make ends meet in the current economy.
Jelinek told CNBC that while overall “the consumer is not doing bad,” and people from higher-income households still have “discretionary income to buy goods” there are still a lot of people right now who are already “in a recession because they’re just trying to survive with just buying gas and making their house payments, rent payments.”
The Biden administration maintains that the U.S. economy is not heading for a recession, despite fears among experts.
Federal Reserve officials in mid-June raised the benchmark interest rate by 0.75 percentage points, and the Fed is expected to raise rates by another 0.75 percentage points in July as inflation remains high, according to multiple reports.
Andrew Moran contributed to this report.