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June 16, 2023 : Despite significant drops in inflation, a buoyant stock market, and robust national retail sales, retailers are bracing for a lackluster holiday spending season in 2023, according to the latest CNBC Supply Chain Survey. Early indications from peak season order activity suggest that retailers order less and expect consumers to seek discounts and incentives to encourage purchases.
Last year, Target and Walmart surprised the market by amassing large inventories, resulting in substantial markdowns. Many retailers are still working through their inventories as the peak season for orders approaches. Recent Q1 earnings reports from leading retailers highlighted reduced consumer spending, a trend confirmed by the CNBC survey.
The survey, which involved 147 respondents, including the American Apparel & Footwear Association (AAFA), the National Retail Federation, the Council of Supply Chain Management Professionals (CSCMP), and the United National Consumer Suppliers (UNCS), reveals that inventory and inflation concerns remain a top priority for apparel and footwear executives as they enter the peak shipping season.
Most respondents expect lower peak season orders than the previous year, with 21% anticipating similar order levels. The survey was conducted from May 24 to June 11 and coincided with West Coast port labor slowdowns, heightening concerns about supply chain congestion and inflationary impacts. However, during the survey period, port management and the labor union reached tentative agreement.
Although inflation has decreased from over 9% last summer to 4% in the most recent Consumer Price Index (CPI) reading in May, 71% of survey participants expressed concerns that consumers will curtail holiday spending in response to inflation. Consequently, 77% of holiday season orders comprise middle-price point items, including jackets, while only 17% include high-end apparel, electronics, and memorabilia.
Retail CEOs across various sectors, including jewelry and fashion, have indicated signs of the luxury market reaching its peak, despite the high-end consumer’s resilience in a softer economy.
The survey’s findings coincide with the latest CNBC Fed Survey, where economists, Wall Street strategists, and money managers now predict a recession to begin in the fourth quarter of the year. Of those surveyed, 54% anticipate a recession within the next 12 months, aligning closely with the onset of the holiday shopping season in November.
Jon Gold, vice president of supply chain and customs policy at the National Retail Federation, highlighted the ongoing stress and challenges retailers and businesses face in their supply chains. The West Coast port labor negotiations and associated disruptions have significantly impacted supply chain decisions, leading some shippers to permanently shift cargo away from the West Coast, even after the tentative deal’s finalization.
Furthermore, the survey revealed that most respondents are not considering deploying more artificial intelligence (AI) for deeper inventory analysis, indicating a conservative approach to inventory management during the peak season.
As retailers and supply chains navigate uncertainties, the holiday season is expected to pose significant challenges, with consumer spending behavior and supply chain decisions playing pivotal roles in determining the outcome.
