Retailers’ Next Headache? Odds Favor A Post-Holiday Recession

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When things were looking up – consumer spending has been strong so far this season, profit margins are up, COVID rates are declining – the retail industry finds itself on the way to another economic cyclone.

It may be a blissful season, but other, foreboding news raises the specter of a post-holiday hangover to remember.

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The mountain of seasonal goods remains stuck in the supply chain with goods for future seasons. Where to put it all This has fueled the warehouse business so much that space has become scarce and expensive. As we discussed in a previous posting here, the typical solution to an inventory glut is to blow it away with a deep discount. The start of the new year would be a great time to get a lot on a television or a pair of high-design “durable” shoes.

The Federal Reserve Board recently removed “transient” from its discussion on the rapid rise in inflation.

By most measures, the damage to the wallets and trust of consumers has already been done. University of Michigan reported that its US Consumer Sentiment Index fell to a 10-year low in November. Consumers say things haven’t been so bad since the 2008 mortgage crisis and the Great Financial Meltdown. People may be in a spending mood today, but what if the bill comes next month?

Omicron, new travel restrictions and lockdowns. The pandemic is about to turn two years old and just as consumers were feeling comfortable about returning to brick-and-mortar stores, those signs are reappearing on front doors, regardless of vaccination status. Patrons request to wear masks.

The good news is that unemployment is low, jobs are plentiful, and retailers have become more sophisticated, agile, and digitally savvy.

Assuming the inventory purge develops in early 2022, companies that have invested in research to identify their customer base can take advantage of what they’ve learned for pricing. There is a huge opportunity to appeal to consumers on a psychological level.

The pandemic has had a profound effect on how people see themselves. McKinsey & Company, In June 2020 report correctly predicted that:

“Value perception—the combination of price, quality and service by which consumers decide whether they are getting a good deal…will become important as the current crisis emerges.”

A year and a half later, we are still struggling to emerge from the crisis. If the year 2022 starts with a recession, then things seem right for a short time, if there is a pain.


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