Retail Sector Facing Pessimistic Outlook During Holiday Season According to Cowen

The retail industry is gearing up for a challenging holiday season, with a mix of positive and negative indicators shaping the landscape.

According to recent reports, consumer spending is weakening, with a smaller share of wallets being allocated for social events, travel, and apparel. This trend is reflected in the findings of a survey, which shows that 30% of consumers plan to spend less this year. In an effort to save, 84% of holiday shoppers are planning to reduce the cost of their purchases, with 39% intending to buy at least half their purchases on sale.

Despite these challenges, the industry saw a surge in holiday sales in 2021, a trend that analysts anticipate may continue. However, they also warn of potential risks to sales projections and plans, citing volatility in consumer spending, inflation, and supply chain disruptions as key concerns.

The volatility is further compounded by the ongoing inflation, exacerbated by high energy prices and global events. Inflation is not only affecting consumer spending but also the costs for retailers, with labor and rent expenses on the rise.

On a positive note, margins for many retailers remained strong in 2021, a testament to their resilience. However, the industry is experiencing increased competition for customer acquisition and wallet share, as retailers strive to attract consumers in this challenging economic climate.

To counteract these challenges, retailers are focusing on inventory management. Record high levels of inventory exist in the consumer sector, a strategy aimed at ensuring products are available for consumers during the holiday season. However, widespread supply chain backups from 2021 have left some retailers with scarce inventory, a situation they are working diligently to rectify.

Interest rates are also on the rise, another factor affecting consumer spending. Declining costs of freight, fuel, and some inputs like cotton are being observed due to declining demand from a consumer under pressure.

As the holiday season approaches, many consumers and retail executives anticipate a recession ahead. Despite these challenges, AlixPartner's projections of 4% to 7% growth in holiday sales overall would be a decrease when the inflation rate is taken into account. The retail industry is bracing for a season of volatility, but remains hopeful for a successful holiday season.

Retail Sector Facing Pessimistic Outlook During Holiday Season According to Cowen