The New Reality: More Promotions, Lower Margins, And Lower Earnings

Retail The New Reality: More Promotions, Lower Margins, And Lower Earnings Walter Loeb Senior Contributor Opinions expressed by Forbes Contributors are their own. I cover major developments in the retail industry. New! Follow this author to stay notified about their latest stories.

Got it! Sep 1, 2022, 07:00am EDT | Share to Facebook Share to Twitter Share to Linkedin Sales Magnifier Definition Meaning Price Reduction Offers And Clearances getty Listening to what Best Buy BBY , Walmart WMT , and other retailers are saying these days, I am now looking at a more promotional environment until the end of this year. Retailers are determined to clear their shelves of overbought merchandise and will become more aggressive as they perceive consumer apathy because of high prices across such key categories as food, gasoline, and clothing. Sales for back-to-school have been meager but there is hope that back-to-college will be better after the sweltering summer.

Every store classification is now encountering a slowdown in sales due to higher prices. The consumer is often trading down to lower cost brands or choosing generic merchandise. The shopper is still shopping, but her open-to-buy has been restricted by a budget that has limited flexibility.

Margins will be lower as stores promote. While Target TGT claimed they took a red pencil to their overstock position in the second quarter and feel good about their merchandise assortment for the coming season, they may still face a more promotional environment in this fall and winter season. That may divert shoppers to competitors’ stores and create a new round of inventory challenges.

Here are some examples of major retailers making dramatic revisions: · Macy’s reduced its fiscal year 2022 forecast to $4. 00 – $4. 20 from an earlier projection of $4.

53 – $4. 95 a share. · Kohl’s forecasts a decrease to $2.

80 – $3. 20 from an earlier estimate of $6. 45 – $6.

85. · Walmart estimates a decline of 9 to 11 percent. MORE FOR YOU ‘No Christmas Trees, No Christmas Trees’ Another Shortage May Be On The Way The Grocery Business Is Going To Get Much More Competitive Costco Addresses Supply Chain Pains By Chartering Their Own Ships · Best Buy looks now for a sales decline of 11 percent for the fiscal year.

Many companies will have to reduce their inventories now as future interest rate increases by the Federal Reserve may shut down more spending. I believe that there always will be a rush for holiday gifts and there will be enough gifts under the Christmas tree to keep the family happy. But purchases of extra TV sets or new computers may have to be postponed.

Instead of buying at Nordstrom JWN JWN , shoppers may go to the Nordstrom Rack; instead of shopping the Macy’s main store, shoppers may veer to the Backstage store located in most Macy’s stores and to Toys “R” Us shops in all Macy’s stores. TJX Chairman and CEO Ernie Herman spoke about the availability of merchandise he sees at this time. His comments suggest that brands have overproduced in hopes of selling heavily into their retail clients and will now have to rid themselves of goods as they face a leaner season.

In fact, both PVH PVH Corporation (in the Calvin Klein and Tommy Hilfiger businesses) and VF Corp VFC have already announced job cuts in response to the challenging market conditions. At the same time, reports indicate that dressier fashions for back-to-work and special occasions (such as weddings), travel related goods such as luggage, and footwear are selling. These trends show that upper middle class and luxury shoppers are still affluent enough to spend for their special occasion or vacation.

However, this activity isn’t enough to carry the entire industry. POSTSCRIPT: Careful inventory management will be the key strategy for success in the next two years. I am not sure when the Federal Reserve will stop raising rates or even start lowering them.

However, I agree that the raging inflation rate has to be tamed and normalcy returned. It is hard to predict just when that normalcy will re-emerge, so I agree that drastic action must be taken. Walter Loeb Editorial Standards Print Reprints & Permissions.