Retail Outlook for Holiday 2022: The Strong Get Stronger

As the 2022 fourth quarter kicks off, those retailers that have been weathering the choppy economy so far appear poised to come out on top when all the beans have been counted. Inversely, this holiday season may be the one that finally takes out some former leaders, especially those (e.g., Bed Bath & Beyond) that have been besieged by activist investors impatiently waiting for turnarounds.

The key factor this year’s challenges is no surprise — inflation.

A recent survey of 1,000 consumers by 4Over, a producer of printed materials for the retail industry, found that about 6 in 10 shoppers, “are stressed about buying holiday gifts this year due to inflation.” Three out of four expect prices to rise further this fall. But the key takeaway might be that nearly half of Americans told researchers that this year, “paying full price for something is a dealbreaker.”

First Insight’s latest report, The State of Consumer Spending: Inflation’s International Impact found that over eighty percent of international consumers have lower confidence to spend amid persistent inflation.

As a result, winners will likely be those familiar brands associated with aggressive pricing on consumer staples (Walmart, Costco, BJs), and Amazon. I would add to this list The Home Depot. While consumers have been spending less than they were during the pandemic, The Home Depot managed to outflank competitor Lowe’s by beefing up its relationship with contractors. Home Depot may also benefit from Lowe’s self-inflicted wounds.

The list of likely laggards this holiday must include Bed Bath & Beyond, being stalked by Wall Street sharks. Bed Bath & Beyond’s troubles have been well documented in these columns. In the past two months, the company closed about 150 stores, laid off som employees, canned the CEO, and most recently, reported a quarterly sales plunge of 28%. Signs of a turnaround are not to be found.

From where I sit, the final sprint of the retail year is shaping up to be just okay — not a disaster and definitely not gangbusters.

Most experts talk about modestly higher year-over-year revenue, attributable mostly to higher prices as opposed to unit sales growth.

Meanwhile, consumer confidence, which by some measures has perked up a bit lately, is shaky and volatile. Spiking gas prices helped drive it down in the summer and falling prices have improved the economic vibe.

But there is always a knock-on effect when interest and mortgage rates surge as they have. As the real estate market begins to stall and prices retreat, many homeowners who thought they were sitting on a treasure chest of equity will feel a lot less flush.

A ho-hum holiday this year will likely instill some confidence in the industry, but the real test will come in the early quarters of next year, when a real estate slowdown becomes an accepted new normal, the midterm elections are behind us, and the news is full of speculation about 2024. Lastly, let’s not forget about inventory and the issues arising out of the bullwhip effects of the inventory movement through the supply chain.

Clearly, retail is not for the faint-of-heart investor or leader. So, buckle up…it should be an interesting 2023.