In Retail, Everything Is Great. And Getting Worse

In Retail, Everything Is Great. And Getting Worse

I have spent the last two days at a conference called Shoptalk. For the last several years, Shoptalk is where the retail and consumer industries gather to exchange ideas and see which technologies and trends are taking hold.

Most companies here are reporting great results. The consumer is eager to get out and spend. Fashion brands especially, which were getting less consumer attention for the last few years, have been growing in double-digits as consumers get tired of the athleisure they’ve been wearing for the last two years. Jewelry has been very strong and beauty has been super strong. Based on past performance, everything is fantastic and the outlook should be even stronger.

But the expectations here, the chatter, is that the past is not the future. Brand after brand, when I sit and talk with them, tell me that March numbers are going to come in much weaker than January or February. They are saying that the buoyant consumer, the driver of the U.S. economy, is losing their spending moxie.

Reports are also that younger consumers are getting squeezed by the payment on their buy-now-pay-later commitments. It is keeping them from spending more.

No one can say whether it’s Ukraine or inflation or pandemic fatigue and right now there’s no data to back up the concern. And maybe the concern is misplaced. But I am hearing it from so many places, it would be surprising if the March and April data, when it’s released, is as good as other recent months.

Of course it’s right to say that retail is seasonal and what matters is year-over-year. But if the year-over-year is much lower in March and April than it was in January and February, then something not good is happening in the economy.

The Good News

It’s not all bad here and that’s because of inflation. Inflation has given brands and retailers whose margins have been squeezed for a long time the opportunity to increase prices and support margins.

Inflation is self-accelerating. It causes consumers to believe they should spend today because what they want will only cost more tomorrow. That causes prices to rise even faster and the increases get bigger and bigger and happen faster and faster over time and the rate of inflation grows and grows, just as we are now seeing. It takes a force in the market to stop it, it tends not to happen on its own.

When inflation was last out of control in the 1980s, the federal reserve had to inflict serious pain on the economy to bring it down. If the Fed has to do that again now, unemployment and general suffering will be severely increased.

The anecdotal reporting is that consumers are starting to push back, that they are resisting price increases, especially on discretionary items and especially in luxury. If that anecdotal evidence turns out to be supported by the March and April data when it comes out, it might mean that the Fed doesn’t have to act so dramatically and that inflation is not as great a threat as it was 40 years ago to long-term prosperity.

To be clear, none of this pessimism is based on hard data, it’s too early for that. When the March data and then Apriil data is released, it will be more certain, one way or the other. But based on the consistency of the reporting I’m getting, it looks like the last 10 months of 2022 will look very different than the first two months have. Time will tell.

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