Economic Turmoil Exposes Retail Industry’s Knee-Jerk Tactics

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The fallout from two years of economic volatility, and now a developing recession, is forcing leading retailers to come to terms with the industry’s penchant for boom-and-bust planning. By this time next year, the retail landscape promises to look as different from today as it does today from a year ago.

Exhibit A is recent announcements and news about Amazon, which had been the pandemic’s biggest winner. The company just announced that it is abandoning plans to build an airport cargo center at Newark Airport. The plan ran into a phalanx of opposition from labor and community groups and the pushback was cited as the principal reason for canceling.

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But it comes on the heels of a general pullback by Amazon after a two-year expansion binge that doubled its capacity in just 24 months, and after posting its first quarterly loss in seven years. Amazon has been shuttering warehouses and has reportedly been scaling back its huge list of private-label merchandise.

A binge of a different sort has clobbered Target, Walmart, and Gap. In an effort to outflank last year’s supply chain bottleneck, and despite a steady decline in consumer sentiment, they and other retailers hastened to beef up inventories to meet booming demand.

Late arriving merchandise and flattening demand produced a predictable inventory glut at the largest companies included in S&P consumer indices — collectively up a staggering 26% over a year earlier, according to a Bloomberg report,

Walmart and Target are likely to survive the hit to their bottom lines, but the jury is out on the rest. Economists have been debating for a year over the possibility of a recession and continue to do so even in the face of mounting evidence that consumer behavior has changed.

For example, consultant NPD Group reported in May that consumers bought 6% fewer items at retail than they did in the first quarter of 2021, and that more than 8 in 10 US consumers plan to pull back on their spending in the next three to six months,

The latest reading of the Consumer Confidence Survey from the Conference Board is at the lowest level since February of last year and the Expectations Index has hit a nine-year low.

About the only thing surprising about all these developments is that the industry as a whole isn’t paying attention to the signals that consumers have been sending since the onset of the pandemic in March 2020, and especially over the past year. The message embedded in the chart of the widely-followed University of Michigan Consumer Sentiment is as stark over the past two and a-half years as it was at the beginning of the last recession, which followed the crash of the housing market in 2008.

Although retailers have lately been signing on to the concept of the “voice of the customer” — a strategy of soliciting from shoppers what they are thinking, need, and want — it’s clear that many have not been listening.

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Credit: www.forbes.com /

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