This has left many retailers with too much stock. So they cut prices to clear shelves and warehouses.
The proportion of American clothing, shoes and accessories sold at a discount has increased this year compared to 2021, according to retail intelligence firm EDITED. Markdowns were also steeper. And it’s a similar picture in the UK.
The discounts are not limited to clothing. Home furnishings, electronics, bikes, sneakers and even scented candles are all on sale after retailers from Best Buy Co. to Bath & Body Works Inc. warned of sales and profits. According to Adobe Analytics, online prices in the United States fell for the first time in more than two years in July, with the biggest reductions for electronics, computers and toys, while the costs of food and domestic animals remain raised.
This creates a mixed image for back to school. Average selling prices in most categories are rising, according to data provider NPD Group. But they are down in clothing and footwear thanks to more promotions. Not only is this good news for beleaguered parents, but the wave of discounts may help dampen inflation in the wider economy, fueling the soft landing narrative that’s brewing. Indeed, a decline in clothing prices from June was one of the factors behind a moderation in US inflation in July.
Yet consumers and policy makers should not take the current scenario for granted. Amid the fallout from the Great Inflation meeting the Great Pandemic Rotation, consumer goods companies will soon begin to reevaluate their purchasing strategies.
A year ago, retailers were stocking up in the second half as supply chains grew increasingly fragile. They were more concerned about disappointing customers with empty shelves than the impact it would have on inventory. This eventually led to stacking now.
At the same time, there is growing evidence that poorer consumers are becoming more cautious, as well as some early warning signs of increased pricing pressure across the income scale. And while the supply chain hasn’t fully returned to normal — Target described it as “patchy” in its first-quarter earnings call — Asian factories are open, containers are available, and freight rates are down.
All of these factors mean that retailers are likely already cutting back on orders for the upcoming winter holiday season. Walmart, Target, Home Depot Inc. and Kohls Corp. will all update their inventory positions with profits next week.
If inventory levels rebalance as the excess is eliminated over the next few months and smaller fall and winter orders begin to arrive, discounts should begin to level off or decline. That would be good for retailers’ profits, which have been strained by soaring costs and the need to reduce bloated inventory. But it will not be welcome for buyers in a hurry.
However, if expectations of a soft landing prove too optimistic and Americans cut discretionary spending even further, stores could continue to struggle to clear inventory and even reduced shipments could outpace consumer demand. . This would extend discounts to fall and winter.
The back-to-school shopping season should give an idea of the most likely scenario.
In the four weeks to the end of July, back-to-school sales volumes were 1% lower than 2021 and 13% lower than 2019, according to NPD. But with higher prices in many categories, dollar sales should perform better than the volume of units sold. It’s also still early in the season. Even so, it’s worth remembering that over the past year, parents have been showered with money from savings and stimulus payments, while children have resumed in-person learning for the first time in more than a year. a year.
Back to school is usually a good indicator of consumer demand for winter holidays. This will be truer than ever this year.
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Andrea Felsted is a Bloomberg Opinion columnist covering consumer goods and the retail industry. Previously, she was a reporter for the Financial Times.
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