Retailers start preparing for a deeply discounted, down holiday season

**Lower Expectations for Holiday Spending Season in 2023**

Retailers are not optimistic about the upcoming holiday spending season in 2023, despite positive economic indicators such as low inflation rates and a strong stock market. The CNBC Supply Chain Survey shows that retailers are ordering less and are anticipating consumers to seek discounts and freebies to encourage them to make purchases. This sentiment is influenced by last year’s inventory build-up and subsequent steep markdowns by big-box retailers Target and Walmart. Most retailers are still reducing their inventories as peak season for orders begins. In addition, concerns about inflation still weigh on retailers, with 71% of respondents worried that consumers will cut back on holiday spending in response to inflation. As a result, retailers are ordering middle price-point items such as jackets, with the majority of items in warehouses being sweaters, boots, dresses, and evening purses.

**Consumer Concerns and Shift in Spending Habits**

Respondents to the survey expressed concerns about consumer spending habits, with 67% of those surveyed expecting consumers to look for discounts. This aligns with CEOs in the retail sector who have indicated signs of a peak in the luxury market. Despite the resilience of consumers during the past year, there are now expectations of a recession beginning in the fourth quarter of the year. With this uncertainty, retailers are focusing on offering discounts and promotional products to attract consumers. More than half of the orders for the holiday season will be promotional products, including free gifts with purchase. Only 17% of items ordered are high-end items in apparel, electronics, and memorabilia.

**Opportunities for Retailers**

Brett Rose, CEO of United National Consumer Suppliers, suggests that retailers should capitalize on the bloated inventory to attract consumers with discounts. This may require sacrificing margin and profitability on some inventory, but it can lead to additional purchases. Jon Gold, vice president of supply chain and customs policy at the National Retail Federation, acknowledges the ongoing challenges and stress in supply chains and highlights the impact of West Coast port labor negotiations on supply chain decisions. While some shippers have shifted cargo away from the West Coast, it remains uncertain whether they will permanently shift away after a tentative deal is reached.

**Logistical Challenges and Outlook**

For ground logistical firms, rail companies, and short-haul trucking, the holiday shipping season is a critical time for making money. However, given the anticipated consumer pullback, freight order volume is not expected to exceed 2022 levels for the majority of logistics firms. Labor costs, bloated inventories, warehouse costs, and labor shortages continue to be significant challenges for participants. The survey also reveals a cautious approach to inventory this peak season, with supply chains adopting a wait-and-see approach to shifting back to the West Coast. Concerns over inventory carryover and consumer sentiment towards price discounts due to inflation are key factors.

**Consideration of Artificial Intelligence in Inventory Analysis**

Amidst uncertainty in consumer behavior and the supply chain, the survey asked respondents about their consideration of deploying more artificial intelligence for deeper inventory analysis. The majority (57%) indicated that they are not considering this, while 31% said they are. This reflects a mixed attitude towards integrating technology into inventory management strategies.

In conclusion, the CNBC Supply Chain Survey reveals lower expectations for the 2023 holiday spending season, with retailers ordering fewer items and anticipating consumer demand for discounts. Concerns about inflation and a potential recession further contribute to retailers’ cautious approach. Despite challenges in the supply chain and logistics, retailers have the opportunity to attract consumers with discounted prices and promotional products. The use of artificial intelligence for deeper inventory analysis remains a mixed consideration among respondents.

What do you think?

Written by The Modest Man

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