Will Stores Be Successful During Inflation?

Stores must understand the mood of today’s shopper in order to be successful. The mood has changed significantly in recent times, and retailers must evaluate how to shift shopping back to stores. It is more complicated than just trying to compete with the internet; the ‘does she still want to shop online’, or ‘does she want to go to a store?’ is only part of the challenge.

The consumer’s urge to get out of the house is evident, and that provides an immediate opportunity for stores to find ways to tap into. For instance, shoppers for fashion often want to try on clothes and chose the right color, right fabric and have an assurance that it fits, and stores are set up to do that conveniently. In contrast, during the pandemic I am told that many customers forced to shop online bought two (or three) sizes to insure the proper fit. The rest were returned for credit. That process has hassles that an in-store shopper can avoid.

We are seeing the first signs of new brick and mortar store openings. Academy Sports & Outdoors is opening 8 stores this year, Dillard’s has replaced two ancient stores with new units, Macy’s will open several new locations this year, and Kohl’s is updating 400 stores when it adds Sephora to their assortment. Certainly, specialty stores are also adding to their physical growth. Stores are being spruced up in preparation for Fall business.

In addition to those stores I just mentioned, many retailers across all categories have plans for store openings. The National Retail Federation published a list that is seven times larger than closings expected in 2022. It includes 400 Family Dollar stores and 190 Dollar Tree
DLTR
stores. Warby Parker optical stores will expand with 40 additional units on top of the 160 stores currently open. Among the off-price retailers, TJX will add 150 stores, Burlington 90, and Ross stores will open a total of 100 stores. Macy’s is likely to open several Macy’s Markets and Bloomies concept shops. It shows how retailers are optimistic and ready to expand.

While it is all well and good to be optimistic in this post-pandemic world, stores will need to do more than refresh their stores. They must rethink their merchandising strategies as well. That’s because, along with enticing customers to shift away from online shopping, the mood across the economy will be tougher as the Fall season approaches. Interest rates are rising to combat inflation which is already rampant. Higher interest rates will mean higher costs of merchandise. At the same time, wages are not keeping up. “The trend of unit labor cost is running more than double the Fed’s inflation goal of 2%, signaling inflation pressures persist”, says Wells Fargo
WFC
economist Sarah House.

Despite more attractive stores, it is likely that shoppers will overall buy less, and all of this could plunge the U.S. into a recessionary environment. If there will be no government help, many workers may be unemployed. That would reinforce the recession and cause people to panic. One can only hope that the government is ready with programs to counter the economic challenges, with work projects and support for the unemployed.

I sense that most store management teams are aware of this. In fact, stores smartly sense the potential of a negative environment in the Fall season, and their strategies reflect the need for strong promotional activity.

Many stores are planning strong merchandise promotions. There will be exciting back-to-school sales supported by tax free days in many states followed by Fall sales with fashion galore. Then early in October, Christmas sales will start as stores will beat the drum early and loud with another round of sales promotions. These are planned sales that should not negatively affect gross margin since stores read the consumer’s mood and bought early. It is likely that stores will be closed on Thanksgiving Day and kick off with sales on Black Friday. For shoppers, the best advice is if you see a good deal, buy it. It will not be around for late shopping.

POSTSCRIPT: The uncertainty of the months ahead is worrisome. Retailers will promote, and shoppers will respond. However, one can see the possibility of more debt that families cannot repay. One hopes for a solution – the end of conflict in Ukraine, peace with China, a closer collaboration among nations – that eases some of the economic pressure. Without some relief, even the best retailer efforts will fall short. I see it as a dream, the reality is much starker and needs strong government intervention.