• October 6, 2022

Maintaining Brand Equity In Challenging Economic Times

Holiday 2022 is right around the corner, and many brands and retailers have already warned investors that their inventory levels are too high which will necessitate significant markdowns. Some luxury brands …

Uber Decision Implications For Virtual CISOs

Yesterday, Uber’s former head of security, Joe Sullivan, was found guilty of obstructing an investigation by the Federal Trade Commission into Uber’s security practices. He was also charged with hiding a …

How To Tell Which Way The Market Will Move

I learned long ago that all you need to know in the markets is whether the market is going up or down. While this seems really very obvious it doesn’t seem …

The U.S. Census Bureau reported the first month-over-month sales decrease this year at minus 0.3% for May. While many categories slowed compared to last month including automobiles, online purchases, furniture/ home, and electronics/appliances, some category spending remained almost flat. General merchandise stores (department, discount and warehouse clubs) and apparel/accessories stores were both up 0.1%. Fuel sales were up 4% along with groceries up 1.2%, but both categories experienced higher prices for the month of May.

Rising prices continue

Over the last 12 months, the Consumer Price Index for all items increased 8.6 percent before seasonal adjustment. Food prices are up 10% and energy is up 34% (gasoline and fuel oil prices are up 50%). All other categories minus food and energy are up 6%.

Month-over-month sales were up 4.2% in January; the sales increases have slowly declined in magnitude month by month until an actual sales decrease was recorded for May. Jonathan Silver, CEO of Affinity Solutions, said, “Our data shows that spending year-over-year is up 7%, however, this would mark the third straight month of single-digit increases after opening 2022 with stronger double-digit results. We’re seeing consumers pull back on big-ticket items such as electronics and appliances and clothing. Additionally, we saw people put home renovation plans on hold with building materials and gardening down.”

As demand slows and inflationary prices increase, retailers find themselves with too much inventory on hand which was a topic of discussion in earnings calls for the first quarter (for most companies, first-quarter runs from February through April). Macy’s, Kohl’s, Walmart
WMT
, Target
TGT
and other major retailers are all experiencing the same problem with excess inventory and are looking at ways to churn through inventory including reducing prices on overstocked products.

Advertisement

Silver discussed that with inflation accelerating in May due to surging food, gas and energy prices, the company saw spending on gas nearly double year-over-year which is no surprise, as prices exceed $5 per gallon in many locations.

Customers’ purchasing patterns change

More money spent on gas equates to less money spent on clothes, accessories, etc. and creates an overage of inventory in those categories. Shoppers are spending more on non-discretionary items like groceries and fuel which impacts what is left to spend on discretionary items. The discretionary money they do have is being spent on travel, entertainment and going out, areas that were severely cut back during the pandemic. Restaurants and bar sales were up 0.7% for May.

Travel spending in April exceeded 2019 levels for the first time since the start of the pandemic. Silver stated, “Some of the biggest increases came in airfares (up 12.6% on the month), used cars and trucks (1.8%), and dairy products (2.9%).” According to the U.S. Travel Association, traveler sentiment remains relatively buoyant as virus fears recede, but recent traveler survey results suggest rising gas and airfare prices are beginning to dissuade some leisure travelers. Predictive indicators suggest business conditions are becoming more favorable for business travel recovery, as the pace of group room bookings is showing an uptick for the first three quarters of 2022.

Retailers are challenged with slowing demand in some categories and a shift in spending on products with rising prices due to inflated costs for fuel and transportation. Additionally, many retailers are faced with higher wages (employment costs) and production costs which will also contribute to higher cost of goods and possible price increases.

Advertisement

Leave a Reply

Your email address will not be published.