Global Courant
Inflation is down significantly, the stock market is more buoyant than it has been in a year, and the last monthly national retail sales reporting came in stronger than expected, but according to the latest CNBC Supply Chain Survey, retailers don’t expect that to change the bleak holiday season in 2023.
The survey’s early research on peak season ordering activity shows that retailers order less and expect consumers to look for discounts and freebies to entice them to buy more.
Last summer, big-box retailers Target and Walmart surprised the market when they unveiled massive inventory builds that led to a period of sharp price cuts. Many retailers are still stocking up as the peak order season begins.
The big-box leaders indicated during recent Q1 earnings reports that consumers are spending less, and other new CNBC retail surveys indicate that the consumer situation continues to deteriorate. Unusual items clogging warehouse shelves are a problem for all respondents to varying degrees.
“Concerns about vacancy, inventory and inflation remain top-of-mind for apparel and footwear executives as we enter the shipping season,” said Stephen Lamar, president and CEO of the American Apparel & Footwear Association.
The largest group of respondents (43%) expect a lower peak season compared to last year, and 21% of those surveyed expect the number of orders to be the same.
The American Footwear and Apparel Association, National Retail Federation, Council of Supply Chain Management Professionals and United National Consumer Suppliers were among the respondents to the CNBC survey, which was conducted between May 24 and June 11 of 147 respondents. The inquiry came during a period that coincided with slowdowns in the West Coast dockwork, raising fears of potential inflationary impacts from supply chain congestion, before a tentative agreement was reached between port management and the union on Wednesday.
Even with inflation falling from more than 9% last summer to 4% in the most recent CPI reading for May, 71% of survey participants said they are concerned that consumers will cut holiday spending in response to inflation .
About two-thirds (67%) of those surveyed expect consumers to look for discounts.
Based on concerns about consumer cutbacks, 77% of all items ordered this holiday season are mid-price items, including jackets.
The most items in warehouses are sweaters, followed by boots, dresses and evening bags.
More than half (52%) of orders are promotional products, such as free gifts with purchase.
Only 17% of items ordered are high-end items in clothing, electronics, and memorabilia.
Retail CEOs recently indicated that while high-end consumers have remained strong in a weaker economy, there are signs that the luxury market has peaked.
Consumer concerns, which have proved resilient over more than a year of shifting timelines about when a recession will hit the US, come as the latest CNBC Fed survey released earlier this week shows economists, Wall Street- strategists and money managers now predict a recession that will eventually begin in the fourth quarter of the year. In the Fed Survey, 54% predict a recession in the next 12 months, and the average starting month is now at the beginning of the Christmas shopping season: November.
Brett Rose, CEO of United National Consumer Suppliers, a supplier of Amazon third-party sellers and TJ Maxx, Macy’s, HomeGoods and Ross Stores, said if retailers are already concerned about inventory levels, they should be concerned about consumer cutbacks, they should use that as an opportunity to move more goods. Even if it means sacrificing margin and profitability on some inventories, it’s the way to give consumers what they’re looking for: discounts, he said.
“(The) 67% of those surveyed say consumers are looking for discounts (this) holiday season, they should take advantage of the inflated inventory,” Rose said. “Use the inflated inventory to hook the consumer, and there will be additional purchases while shopping,” he said.
Jon Gold, vice president of supply chain and customs policy at the National Retail Federation, said the study’s results highlight the ongoing stress and challenges retailers and other businesses face in their supply chains.
“Retailers are constantly working to make sure they have the right inventory mix to meet consumer demand, especially as we enter the holiday shipping season,” said Gold. “The ongoing challenges regarding the West Coast port labor negotiations and associated disruptions have certainly impacted some supply chain decisions. Many shippers have moved cargo away from the West Coast and may decide to leave permanently even after the preliminary deal has been completed.”
The union has said it will take months to ratify the deal among its supporters.
Previous CNBC Supply Chain Survey data has shown that supply chain managers are wary of bringing shipping back to the West Coast after a year of labor market volatility. When asked in the latest survey if they were sending more cargo back to the West Coast, about half (51%) said they weren’t.
Traditionally, orders for high-season retail items are placed in late winter or early spring. This year, with many retailers still running out of supplies, the timing of holiday order placements was more varied. Seventeen percent of respondents said they placed their order for holiday items three months ago; 12% said they placed their order two months ago, 14% said they ordered six months ago; another 14% said they ordered more than six months ago.
Labor costs and inflated inventories continue to be a drag on participants, followed by warehouse costs and labor shortages.
Trucking, ground, rail profit hits
For ground logistics companies, rail companies, and short-haul transportation, the peak holiday season is a lucrative and critical time of year to make money.
Given the expected consumer downturn, most logistics companies do not expect freight order volume to exceed 2022 levels, with 43% of respondents saying they would move less. A quarter (26%) expect cargo volume to be at levels similar to 2022; 21% expect higher freight activity. The largest subset of respondents predicting higher freight orders (42%) estimated the increase in a range of 6%-10%. Respondents who said cargo volume will decline gave a range of 6% to over 15%.
Mark Baxa, CEO of the Council of Supply Chain Management Professionals, said the results reflect the overarching theme of taking a conservative approach with inventory this high season.
“More so, supply chains are essentially taking a wait and see approach to get back to the West Coast as a whole,” Baxa said. “Inventory transfer and concerns about the sentiment that consumers are seeking price discounts due to inflation are key factors.”
Given the uncertainty among consumers and in the supply chain, CNBC asked respondents if they’re considering using more artificial intelligence for deeper inventory analysis. The majority (57%) said they were not, while 31% said they were.
