A woman pushes a shopping cart past Christmas decorations displayed for sale at Wal-Mart.
Patrick T. Fallon | Bloomberg | Getty Images
Inflation has decreased significantly, the stock market is more turbulent than in a year and last month nationally retail sales report came in stronger than expected, but retailers don’t expect that to change what’s shaping up to be an unfavorable holiday season in 2023, according to CNBC’s latest supply chain survey.
Early survey data on peak season order activity shows retailers are ordering less and expect consumers to look for discounts and clearances to entice them to buy more.
Last summer, big box retailers Target and Walmart surprised the market when they revealed massive increases in inventory that led to a period of steep declines. Many retailers are now still pulling stock as the peak ordering season begins.
During recent Q1 earnings reports, major business leaders said consumers are spending less and more new CNBC retail survey suggests that the consumer situation continues to deteriorate. Non-seasonal items clogging storage shelves were a problem to varying degrees for all respondents.
“Clearness, inventory and inflation remain a top topic for apparel and footwear executives as we enter the prime 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 respondents expect the same level of orders.
Respondents to the CNBC survey, which was conducted May 24 through June 11 among 147 respondents, included the American Shoe and Apparel Association, the National Retail Federation, the Council of Supply Chain Management Professionals and the United National Consumer Suppliers. The survey came during a period that coincided with a labor slowdown at West Coast ports that raised concerns about the potential inflationary effects of supply chain congestion. non-binding agreement was reached between port management and the union on Wednesday.
Even as inflation fell from more than 9% last summer to 4% in the latest CPI reading in May, 71% of respondents said they were concerned that consumers would cut back on holiday spending in response to inflation.
Roughly two-thirds (67%) of those surveyed expect consumers to look for discounts.
Based on consumer concerns about the cuts, 77% of all items ordered this holiday season are mid-priced items, including jackets.
Most items in stock are sweaters, followed by shoes, dresses and evening purses.
More than half (52%) of orders will be promotional products such as free gifts with purchase.
Only 17% of items ordered are high-end items in clothing, electronics and memorabilia.
CEOs in the retail sector recently indicated that while high-end consumers remained strong in a softer economy, there were signs that the luxury market has peaked.
Concerns about consumers, which have proven resilient in more than a year of shifting timelines for when a recession will hit the U.S., come as CNBC’s latest Fed survey released earlier this week shows economists, Wall Street strategists and money managers already. they expect the recession to finally begin in the fourth quarter of the year. In the Fed survey, 54% predict a recession in the next 12 months, and the average start to the month is now at the start of the holiday shopping season: November.
Brett Rose, CEO of United National Consumer Suppliers, a supplier to third-party sellers on Amazon and TJ Maxx, Macy’s, HomeGoods and Ross Stores, said that if retailers are already worried about inventory levels, worried about consumer cuts, they should use that as opportunity to move more goods. While that means sacrificing margin and profitability on some inventory, it’s a way to give consumers what they’re looking for: discounts, he said.
“[The] 67% of respondents say consumers will look for discounts [this] holidays, they need to take advantage of excess inventory,” Rose said. “Use excess inventory to engage consumers, and when they shop, more purchases will come,” he said.
Jon Gold, vice president of supply chain and customs policy at the National Retail Federation, said the survey results highlight the continued stress and challenges retailers and other businesses face in their supply chains.
“Retailers are constantly working to ensure they have the right inventory mix to meet consumer demand, especially as we enter the peak holiday shipping season,” Gold said. “The ongoing West Coast port labor negotiations and related disruptions have certainly affected some supply chain decisions. Many carriers have shifted cargo from the West Coast and may decide to move permanently, even after the tentative agreement is finalized.”
The union said so ratification of the agreement will take months among its rank-and-file members.
Previous data from a CNBC supply chain survey showed for supply chain managers to be cautious moving shipping back to the west coast after a year of labor volatility. When asked in the latest survey if they were returning more goods to the West Coast, only about half (51%) said 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 stocking up, the timing of holiday orders is more varied. Seventeen percent of respondents said they ordered holiday items three months ago; 12% said they placed their orders two months ago, 14% said they ordered six months ago; another 14% said they ordered more than six months ago.
Labor costs and bloated inventories continue to hold back entrants, followed by warehouse costs and labor shortages.
For ground logistics firms, rail companies and short-haul freighters, the peak holiday shipping season is a lucrative and critical time of the year for making money.
Due to the expected retreat of consumers, most logistics firms do not expect freight order volume to exceed 2022 levels, with 43% of respondents saying they will move less. One quarter (26%) expect freight volumes to be at a similar level to 2022; 21% predict higher freight traffic. The largest subset of survey respondents predicting higher shipping orders (42%) estimated increases in the 6-10% range. Respondents who said freight volume would decrease provided a range from 6% to more than 15%.
Mark Baxa, CEO of the Council of Supply Chain Management Professionals, said the results reflect an overarching theme of a conservative approach to inventory this peak season.
“Additionally, supply chains are basically taking a wait-and-see approach to moving back to the West Coast as a whole,” Baxa said. “Key factors are inventory carryover and sentiment concerns that consumers are looking for price discounts due to inflation.”
With uncertainty among consumers and in the supply chain, CNBC asked respondents if they were considering deploying more artificial intelligence for deeper inventory analysis. The majority (57%) said they were not, while 31% said they were.