Even as inflation drops sharply year over year, most CNBC Supply Chain Survey respondents are concerned that consumers will cut back on holiday spending. Two-thirds of respondents expect consumers to look for discounts during peak retail season.
Inflation has come down significantly, the stock market is more ebullient than in a year, and the latest monthly national retail sales report came in stronger than expected. Still, retailers don’t expect that to change what is shaping up to be a downbeat holiday spending season in 2023. An early read of peak season order activity shows retailers ordering less and expecting consumers to be looking for discounts and freebies to entice them to buy more, according to the latest CNBC Supply Chain Survey.
Last summer, big box retailers Target and Walmart surprised the market when they revealed huge inventory builds leading to steep markdowns. Many retailers are still drawing down lists as the peak season for orders begins. The prominent box leaders described during recent Q1 earnings report consumers are spending less, and other new CNBC retail surveying indicates that the consumer situation continues to deteriorate. The unseasonable items clogging warehouse shelves have been a problem of varying degrees for all respondents.
“Cleary, inventory, and inflation concerns remain top of mind for apparel and footwear executives as we enter peak shipping season,” said Stephen Lamar, President, and CEO, of the American Apparel & Footwear Association (AAFA).
The most extensive grouping of respondents expects a lower peak season than last year, with 21% of those surveyed expecting the orders to be the same.
The American Footwear and Apparel Association, National Retail Federation, Council of Supply Chain Management Professionals (CSCMP), and United National Consumer Suppliers (UNCS) were among respondents to the CNBC survey conducted May 24-June 11 among 147 respondents. The survey was in the field during a period that coincided with West Coast port labor slowdowns that increased fears about potential inflationary impacts of supply chain congestion before a tentative deal was reached between port management and the labor union on Wednesday.
Even with inflation down from over 9% last summer to 4% in May’s most recent CPI reading, 71% of those surveyed said they are concerned the consumer will cut back on holiday spending in response to inflation.
Roughly two-thirds (67%) of surveyed expect consumers to look for discounts.
Based on consumer concerns about cutbacks, 77% of all items being ordered this holiday season are middle-price point items, including jackets.
The majority of items in warehouses are sweaters, followed by boots, dresses, and evening purses.
More than half (52%) of orders will be promotional products, like gifts with purchase.
Only 17% of items ordered are high-end items in apparel, electronics, and memorabilia.
CEOs in the retail sector, from jewelry to fashion, have recently indicated that even though the high-end consumer has remained strong in a softer economy, there are signs that the luxury market has peaked.
The concerns about the consumer, which has proven resilient during more than a year of shifting timelines on when a recession will hit the U.S., come as the latest CNBC Fed Survey released earlier this week shows economists, Wall Street strategists, and money managers now expecting a recession to begin in the fourth quarter of the year finally. In the Fed Survey, 54% predict a recession in the next 12 months, and the average start month is now right at the onset of holiday shopping season: November.
Jon Gold, vice president of supply chain and customs policy at the National Retail Federation, said the survey results highlight the ongoing stress and challenges that retailers and other businesses face in their supply chains.
“Retailers are constantly working to ensure they have the right inventory mix to meet consumer demands, especially as we enter the peak holiday shipping season,” said Gold. “The ongoing challenges with the West Coast port labor negotiations and associated disruptions have certainly impacted some supply chain decisions. Many shippers have shifted cargo away from the West Coast and may decide to permanently shift away, even after the tentative deal is finalized.”
The labor union has said it will take months to ratify the deal among its rank-and-file members.
Previous CNBC Supply Chain Survey data has shown supply chain managers to be wary of moving shipping back to the West Coast after a year of labor volatility. When asked in the latest survey if they were returning more freight to the West Coast, just about half (51%) indicated they were not.
Traditionally, retail sector orders for peak-season items are placed in late winter or early spring. This year, with many retailers still drawing down inventories, the timing of placing holiday orders has been more varied. Seventeen percent of respondents said they placed their orders for holiday items three months ago; 12% said they placed their orders just two months ago. 14% of respondents said they ordered six months ago; another 14% said they ordered more than six months ago.
Labor costs and bloated inventories continue to be a drag on participants followed by warehouse costs and labor shortages.
