The 2022 holiday season may not be the most wonderful time of the year for retailers, according to industry observers.
From waning consumer demand to an inventory glut, retail giants might need to brace for a challenging fourth quarter, a lackluster period that could result in disappointing earnings reports.
The first difficulty may be pricing their products for budget-conscious consumers in an inflationary environment and slowing economy. Experts say this might be a juggling act, as companies must balance serving shoppers who can endure current economic conditions and customers who are squeezing every penny.
Early surveys suggest that consumers are planning to spend less on this year’s holiday shopping season.
A recent U.S. News & World poll found that 84 percent are concerned about inflation’s impact on gift-giving this Christmas. As a result, 52 percent of respondents plan to spend less on presents, and 72 percent will spend less than $500 on gifts.
A total of 59 percent of consumers are stressed about purchasing gifts this holiday season because of broad-based inflation, a new survey from wholesale trade firm 4over shows. Many shoppers are already preparing, with 38 percent putting money away this summer and 40 percent reporting on cutting back on other expenses to save for Christmas shopping, according to the survey.
Shoppers clutch their Nordstrom bags as pre-Thanksgiving and Christmas holiday shopping accelerates at the King of Prussia Mall in King of Prussia, Pa., on Nov. 22, 2019. (Mark Makela/Reuters)
These expectations might not be surprising, as consumers started altering their buying habits earlier this year. An April report from Intuit QuickBooks shows that 58 percent planned to cut back on spending, such as dining out less (50 percent), only purchasing essential items (44 percent), and using less energy (38 percent).
Slowest Sales Growth in Years?
A wide array of trends throughout the retail landscape has market analysts and retailers anticipating a sluggish fourth quarter for sales growth. Companies purport that their customers are trimming their spending to afford the bare necessities amid skyrocketing prices.
TJX Companies reported net sales of $11.8 billion in the second quarter, down by 2 percent from the same time a year ago, as “historically high inflation impacted consumer discretionary spending.” Burlington Stores posted a 10 percent year-over-year decline in net sales in the April-to-June period. Ross Stores stated that sales could tumble by as much as 4 percent this year.
“Given our first-quarter results and today’s increasingly uncertain macroeconomic and geopolitical environment, we believe it is prudent to adopt a more conservative outlook for the balance of the year,” Ross Stores CEO Barbara Rentler said in a statement.
The chief concern heading into Christmas is slowing consumer demand. However, according to Ryan Turney, founder of Ecommerce Intelligence, the “general consensus” among brands is that they anticipate a reduction in spending next year.
“Generally, a possible slowdown in consumer spending across the board outside of absolute necessities,” he told The Epoch Times, noting that consumers may be “more price sensitive than usual” next year.
The Rise of Bloated Inventories
A growing number of companies are beginning to report the same obstacle: excess supplies.
Department store chain Nordstrom slashed its full-year forecast amid slowing customer demand and an inventory glut.
Inventory levels rose by close to 10 percent in the previous quarter from last year. The company’s goal is to clean out its current stocks by the end of the third quarter.
Macy’s is going through a massive clearance and overstock sale as it plans to clear excess inventory ahead of the holiday shopping season.
“During the quarter, we observed that all retailers were working to shed their excess inventory, setting the industry up for higher permanent markdowns and promotional levels,” Macy’s Chairman and CEO Jeff Gennette told analysts in a recent earnings call. “The industry-wide inventory levels along with the slowdown in consumer discretionary spend resulted in elevated inventory levels within certain categories.”
Target and Walmart are other corporate titans experiencing excess supply levels.
In the second quarter, Target’s profits plunged by 90 percent as it aimed to depend on discounts to remove its inventory. Chief Financial Officer Michael Fiddelke told reporters that the company is aggressively clearing out the clutter and preparing for the holidays and a slower inflationary economy.
“If we hadn’t dealt with our excess inventory head on, we could have avoided some short-term pain on the profit line, but that would have hampered our longer-term potential,” Fiddelke said earlier this month. “While our quarterly profit took a meaningful step down, our future path is brighter.”
Walmart has started canceling billions of dollars in orders to balance its stockpile of goods. The global retail behemoth is also cutting prices on its products to reduce its bloated inventories.
“The increasing levels of food and fuel inflation are affecting how customers spend, and while we’ve made good progress clearing hardline categories, apparel in Walmart U.S. is requiring more markdown dollars,” Walmart CEO Doug McMillon noted in a statement. “We’re now anticipating more pressure on general merchandise in the back half [of the year].”
At the height of the global supply-chain crisis, companies increased their product orders to brace for strong demand and avoid bare shelves. However, many factors affected business efforts: goods arrived too late to sell during the correct season, consumers rotated to services, and a mismatch between supply and demand in inventories.
According to the U.S. Census Bureau, retail inventories (excluding automobiles) rose by 0.4 percent in July, down from a 1.5 percent increase in June. Wholesale inventories advanced by 0.8 percent last month, down from 1.9 percent in the previous month. Retail sales were flat at zero percent last month.
Good News for Consumers?
Bank of America analysts assert that the latest overstock developments in the retail sector may be good news for cash-strapped and financially worried consumers.
“At one extreme, general merchandise stores are overstocked,” the analysts wrote in a recent note (pdf). “But the good news is that excess inventories could put downward pressure on inflation as big-box retailers mark down their prices to entice consumers.”
But will this be enough to entice consumers? Personal spending edged up by 0.1 percent in July, the Bureau of Economic Analysis reported.
