Retailers big and small are wondering if this year will be a repeat of pre-pandemic norms. The National Retail Federation (NRF) recently released its full-year forecast for US retail sales for 2023, calling for moderate growth in the coming months.
US retail sales are expected to grow 4% to 6% this year, totaling between $5.13 trillion and $5.23 trillion. The forecast excludes auto, gasoline and restaurant sales. By comparison, retail sales grew 7% last year to $4.9 trillion, better than the 3.6% compound annual growth rate before the pandemic of 3.6%, the retail group said.
NRF said they expect online retail sales to grow between 10% and 12% year over year to a range of $1.41 trillion to $1.43 trillion. Physical stores remain the primary point of purchase for consumers, accounting for about 70% of total retail sales.
NRF chief economist Jack Kleinheinz said the economy has been resilient despite tightening monetary policy to curb inflation. He said recent concerns in financial markets and the banking sector continue to weigh on the outlook.
“While it’s too early to know the full impact of the turmoil in the banking industry, consumer spending for the first quarter of 2023 is looking pretty good,” Kleinhenz said. “While we expect consumers to remain spending, a weaker and likely uneven pace is forecast for the remainder of the year.”
GDP SETBACK
Kleinhenz said he expects spending to ease and credit to become harder for many consumers as job growth slows in the coming months. He said higher interest rates are likely to keep consumer spending low and impact US gross domestic product. NRF forecasts full-year GDP growth of around 1%, reflecting a slower pace of the economy, half the 2.1% increase from 2022. The trade group estimates inflation is on the way down but will remain between 3% and 3.5% for all goods and services for the year.
Although the labor market has remained resilient, NRF expects job growth to slow in tandem with slower economic activity and the prospect of tight credit conditions. The group said the unemployment rate is likely to top 4% before next year.
Kathy Bostjancic, chief economist at Nationwide Mutual, expects a harder landing for the economy after recent bank failures, which are likely to dampen lending and credit availability in the coming months. She believes inflation will remain stubborn, which poses problems for lower-income households as they primarily spend savings accumulated during the pandemic. Their forecast for inflation is a consumer price index (CPI) of around 4% through the fourth quarter and down to 3% by the end of next year.
“Reducing inflation to normal levels will be a multi-year process,” she said.
She said slowing job growth would also mean stagnant wages and consumer spending is directly related to disposable income.
HARD LANDING
Gregory Daco, Ernst & Young’s chief economist, agreed that slower growth was imminent. That means a more challenging time for many homes and businesses that depend on consumer confidence and spending, like retail and restaurants. Daco said retailers have seen lower supply chain spending this year, but demand has also fallen. He expects consumer confidence to deteriorate as banking problems spread, particularly as pension and mutual funds come under pressure. He expects a hard landing as more than 40% of bankers nationwide have recently tightened lending standards.
“I see the US heading into a typical recession, not a flat one,” Daco said.
Kroger CEO Rodney McMullen said there’s only one thing he’s sure of in this economy, or at any time.
“People will continue to eat, but the way they shop will continue to change,” he said.
Marvin Ellison, CEO of Lowe’s Cos. Inc., said retailers that have brick-and-mortar stores and connect them online can make omnichannel shopping easier. He said retailers that can offer value and service are profitable, recession or not.
CUSTOMER FOCUS
Pashmina Hilal, a research manager in Google’s retail division, said loyalty is out the window.
“Customers are looking for the best deals. Comparable brands at a value that can meet a need is what they’re getting, whether they’re shopping online or in-store,” said Hilal. “Value is here to stay, and physical in-store presence remains incredibly important, especially when combined with an immersive app experience.”
She said bookseller Barnes & Noble is investing in more storefronts because it understands the importance of app usage inside and outside the store.
Hilal said shopping behavior has become a hybrid of online and in-store, making it harder to tell the difference. For example, there was a time when people only shopped for furniture in the showrooms of stores. Now they can buy furniture online and see the items placed in their personal space via artificial intelligence features on apps and websites like Wayfair or Home Depot. She said they can see products being used on social media sites like YouTube, adding more touch points to the shopping experience.
Jonathan Silver, CEO and founder of retail consultancy Affinity Solutions, said people like to shop in brick-and-mortar stores because of their social nature. But he said the rise of online shopping amid the pandemic has some stickiness with consumers.
Anuska Salinas, president of digital native brand Rent the Runway, said the pandemic is immensely challenging as the main customers being served are those going to events. She said the brand has been working to help fashion-forward women, despite their circumstances. The brand has expanded to offer a maternity line and a back-to-the-office line, which has been a hit with customers.
Editor’s note: The Supply side section by Talk Business & Politics focuses on companies, organizations, issues and individuals concerned with the provision of products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak logistics.
Comments are closed.