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18 Jan

Forecasts and Takeaways From NRF’s Big Show

At this week’s National Retail Federation’s Big Show, retailers, industry experts and economists preached the identical sermon: manage inventories and costs conservatively and cautiously and be able to pounce on whatever shopping trends and hot items emerge.

They see 2023 as a tale of two halves for retailers. The primary shall be tough, with a rebound within the second half of the 12 months.

They see a consumer who’s becoming tapped out on savings and increase credit, shifting spending toward experiences and away from stuff, but say retailing generally held up through last holiday, but shall be softening soon.

And there was a consensus on the inevitability of a recession, albeit one with almost definitely a soft landing.

They said the important thing to long-term success is to:

  • Strengthen engagement with consumers by providing richer experiences which can be channel-integrated.
  • Adopt newer ways to generate additional revenues, like marketplaces, artificial intelligence, media networks, resale and possibly even the metaverse.
  • Be agile and open to alter.

“In case you’re not offering the perfect customer experience, your customers will just move on to someone who’s. And with the pace of change that we’re seeing now across the industry, it’s more essential than ever that we keep changing,” said John Furner, president and chief executive officer of Walmart U.S. and chairman of the NRF.

Nevertheless, “Through all of it — the macro environment, the pandemic, natural disasters and historic inflation — retail has had positive growth now for 30 consecutive months,” Furner added. “And back in March of this last 12 months, retail sales were forecast to grow between 6 and eight percent for 2022. We expect that (the industry) will wind up right in the midst of that range for the 12 months. And that’s on top of nearly 14 percent growth back in 2021.”

On Wednesday this week, NRF will release its tally on retail holiday 2022 sales within the U.S.

On Sunday, Furner officially opened up the conference, which was full of greater than 35,000 attendees from 75 countries, marking a near-record-high head count for the annual event and casting a positive reflection on the state of the industry. There was a mood of optimism, though one mixed with uncertainties concerning the economy and amazement over the accelerated pace of fixing consumer shopping behaviors.

The NRF convention and trade fair on the Javits Center on Manhattan’s West Side.

Jason Dixson Photography

“This past 12 months was a historically difficult time,” Furner said. “We did see some relief from the pandemic, though we also saw extreme challenges with global supply chains. And that collided with surging demand, a shift in sectors from goods to services, inflation levels that we haven’t seen for a long time, and the beginning of a war.

“But we should always be really proud of shops all all over the world, who rose up to fulfill those challenges head-on. We did what we do best. We serve customers. We got them what they wanted, and what they needed, amidst all those macro challenges. Second, we innovate. We moved fast to fulfill the shoppers’ changing needs.

“ that self-purchase data, taking a look at our bank card data, after which just taking a look at the macro influences of what’s occurring within the economy, we’re at some extent to say be cautious, but be able to pounce when opportunities and signals present themselves,” said Jeff Gennette, chairman and CEO of Macy’s Inc.

“We don’t see that in our data but we actually see it tangentially through market data how much persons are spending on experiences. If you have a look at the quantity of inflation that’s occurring in services at once, it’s quite high. Goods are beginning to stabilize, which is sweet,” though experiences, services and goods are “all a part of that household open-to-buy. That must be considered,” he said.

“Absolutely, persons are returning to the office,” observed Paige Thomas, president and CEO of Saks Off-Fifth, noting it’s a trend that’s positively impacting sales of sport jackets, tailored clothing, dress up and footwear. “We absolutely see shifts in category performance. The trend lines are happening a lot faster than what I’ve ever experienced,” said Thomas.

Signaling out luggage, Thomas said, “When you concentrate on going into the worldwide pandemic, discuss a crash of a category. No person was traveling. Airplanes were empty. And as quick as [luggage] dropped, it got here back just as quick…And so consumers really modified their shift in wallet back to entertainment and travel again. In order that [luggage] is certainly a category of business that we’re chasing.

“It’s time for us to to be somewhat bit more conservative, and chase the business as we see it,” said Thomas. “And fortunately, it’s quite an opportunistic marketplace for our purchasing team. So customer engagement absolutely is essential to be interested by in a choppy environment. Think concerning the customer journey and each friction point which may come into play. How will you solve those problems? And make it a seamless experience for the shopper.”

Moving forward and letting go may be hard, particularly with technology, which is all the time a serious focus of the Big Show, and a part of the Innovation area on the event featured technologies including product authentication, sustainability, providing transparency in materials that go into making products, unmanned delivery, and 3D shopping within the metaverse.

“Change management is an infinite a part of adopting latest technologies that may move things forward,” said Tim Baxter, CEO of Express Inc. “Even when we’ve invested in technology that ought to make things quicker, easier, more personalized, we’re still hanging on to the legacy way of doing things,” said Baxter, when asked onstage concerning the challenges of coping with existing tech systems. “Change management is probably going the greater challenge we face.

“We as leaders are very, superb at introducing latest technologies, latest things, latest ways of doing things, but not superb at saying, ‘Don’t do this anymore,’” he said. “We’re not good at taking old tasks off the table.”

“We’re in a slowing consumer environment. It’s dearer to draw latest customers. You may have to get more out of your current customers, and find ways along the buyer journey to treat them higher with a greater experience. At the purpose of sale, how do you provide a customized experience, a greater checkout experience,” said Steve Sadove, senior adviser for Mastercard and former CEO and chairman of Saks Inc. “Whether we’re in a recession or the buyer is acting as if it’s a recession, it’s gonna be a difficult and trying in 2023.”

When it comes to what shall be the winning and losing categories, Sadove suggested a “normalization” happening, explaining, “Early within the pandemic, certain categories way outperformed: electronics, athleisure, home. “As we began moving out of the pandemic experience, restaurants began doing higher, people were going out to parties,” sparking dress-up categories. “Now, we’re lapping each of those, and also you’re in a more normalized environment where the expansion versus pre-pandemic 2019 is concerning the same for all of those categories.”

A somewhat more upbeat outlook on the U.S. economy got here from Jack Kleinhenz, the NRF’s chief economist, who said, “If we predict concerning the rate of inflation it’s sort of a positive,” because it’s slowing. “However consumption was relatively strong. Consumer confidence is on the mend. The unemployment rate is at 50-year low. We’re still growing by way of jobs. Initial claims are still well below the break-even level.

“One other point of reference, I’d just say is the Federal Reserve, which raised rates of interest 425 basis points within the second half and the economy continues to be doing OK,” Kleinhenz said.

“So I get quite a lot of questions on what’s the entire story on recession? I’m recurrently asked about it. I can let you know, we’ll have a recession. The query is when will or not it’s. Next 12 months? Business cycles repeat themselves. Recession is a standard a part of the economic fabric. It’s going to be a difficult 2023. I do expect a meaningful slowdown. I’m still constructive concerning the consumer. There still stays a major amount of money on the market. And at once, I don’t imagine that job security is a giant issue for 96 percent of individuals within the economy.…I’d say that we’ll must take our indications from the buyer. After which finally, I have no idea what the Fed will do. I do know they need to avoid suits and starts with the economy, like we saw back within the ’70s. I believe the evidence currently suggests that we’re slowing. But ultimately, my view is that we’re not in recession. At this point, you simply must wait and see.”

“We don’t forecast a recession in our outlook,” said Sarah Wolfe, economist at Morgan Stanley. “But we do have growth falling to about 0.3 percent in 2023. I believe that’s a really painful 12 months that’s well below potential, which is about 1.7 percent growth, and is certainly slower than a number of the very strong growth that we’ve seen over the past two years.”

There shall be pockets of the economy that “feel recessionary,” she continued — like housing, the tech sector and the financial services sector. “But really the silver lining for 2023, we predict it’s going to be the buyer. We have now consumer set spending slowing all the way down to a couple of third of what we saw in 2022. But for those who look under the hood, the buyer continues to be in pretty fine condition. Household balance sheets are still very healthy, people have built up an amazing amount of equity of their homes. During the last couple of years, we’ve seen a sell-off in equities and folks have lost quite a lot of stock market wealth that’s very concentrated amongst the wealthiest households.”

And other people still have excess savings, she noted.

“There’s a bit more to tug consumers through 2023, but really what it comes all the way down to is the labor market and for those who think you’re gonna have a job, you’re gonna proceed to spend. Persons are becoming increasingly concerned concerning the labor market outlook this 12 months, though layoffs have been very concentrated within the tech sector, which is just about 1 percent of total nonfarm payrolls within the U.S. with a really small share of the U.S. economy. However it’s within the headlines lots,” Wolfe said.

“Our viewpoint from KPMG economics is that we imagine the U.S. economy (could) enter a recession in the primary half of 2023,” said Kenneth Kim, senior economist at KPMG, offering a distinct outlook from Wolfe’s. “We don’t know whether the recession might arrive inside a few months, or it could still be a 12 months out. So that could be a very long time span. We do expect to see negative GDP [gross domestic product] in each Q1 and Q2. For Q1, down 2 percent; Q1, down 1.6 percent. So a 1.8 percent decline for the primary half, but within the second half, we see a recovery.”

On inflation, Kim said, “Probably the most recent CPI report for December was for a 6.5 percent annual rate, which is down from 7.1 percent in November, after which the height was 9.1 percent in June of last 12 months. So we’ve made measurable progress. For the balance of this 12 months, let’s say December 2023, we’re probably looking somewhere at 3 or 3.5 percent CPI.”

Mark Mathews, the NRF’s vp of research development and industry evaluation, said U.S. consumers powered through the COVID-19 pandemic with the assistance of some $10 trillion in fiscal stimulus from the federal government — money that continues to be influencing consumer spending. 

The savings rate, as an example, rose to as much as 34 percent through the pandemic, letting consumers construct up what Mathews described as a “war chest of over $2 trillion of excess savings” that helped carry the industry. 

But that’s coming to an end. 

“Inflation has been eating into [those savings], but moderately than cutting back, consumers have chosen to proceed to spend,” Mathews said. “They haven’t reduce on retail, they’ve spent on services and on retail and the way in which that they’ve funded that is by spending those excess savings. 

“There’s still a trillion dollars left of excess savings, but we’re burning through that at a fairly high rate,” Mathews said. “We’re going to get to some extent in 2023, if inflation stays high, you’re potentially going to see consumers running right into a wall because they won’t have the opportunity to keep up that level of spending.” 

The economics of the moment are only a part of a really complex equation needed to grasp the present psychology of consumers, who’re buffeted by a bunch of other forces, from the ripple effects of the pandemic to the rise of technology. 

Michelle Evans, global lead of Euromonitor’s retail and digital consumer unit, highlighted what she described as “authentic automation” as a crucial trend. “That is about finding the balance between human versus bot,” Evans said. “Machines offer more convenience and speed, but we actually shouldn’t underestimate that emotional reference to a brand.”

The suitable balance is usually “tech with a human touch. Consumers have gotten increasingly comfortable with tech interwoven with their each day lives,” Evans said, noting that 80 percent of shoppers under the age of 29 are comfortable with consumer experiences that include technology. 

Machines haven’t taken over, at the least yet. Consumers are “pumping the breaks” when corporations move closer to “automating a purchase order,” said Evans. 

She also pointed to the rise of Gen Z as a consumer force, noting the cohort accounts for 1 / 4 of the population. “They’re expressive, progressive, they take matters into their very own hands,” Evans said. “Their financial freedom is beginning to ramp up. They’re increasingly becoming decision makers you want to reach.”

While navigating the economy and the rapidly changing consumer shopping patterns, it’s also about managing your portfolio, as Nick Woodhouse, president of Authentic Brands Group, outlined. The corporate navigates brands as varied as Brooks Brothers, Juicy Couture and Shaquille O’Neal in categories starting from traditional wholesale and retailing to lifestyle entertainment, the latter of which now accounts for 1 / 4 of its sales.

Woodhouse used Authentic’s largest acquisition, Reebok, which it purchased from Adidas last March for two.1 billion euros, for example. Calling it a “superbrand” that was certainly one of the originators of the sports marketing revolution, it has managed to straddle fashion, athletics and technology over its life span. 

“We make very technical trainers, but we even have permission to play on the street,” he said. And there’s proven demand from a consumer “who loves the legacy of a brand they know and have trusted for an extended, very long time.”

The acquisition was also “transformational” for Authentic and showed the corporate could effectively digest a “gigantic transaction.” On the time of the acquisition, Reebok had sales of $3.5 billion, a number projected to hit $5 billion this 12 months and $10 billion inside three years, Woodhouse said. 

Turning to entertainment, Woodhouse said diversifying Authentic’s portfolio was the first reason the corporate moved into the entertainment realm. Though apparel still represents 40 percent of the corporation’s sales, there’s more to life than clothing, he believes. “People like to shop in malls or online, but additionally they like to go to events and hearken to music.” 

So whether it’s a Sports Illustrated resort or virtual collection for Ceaselessly 21 on Roblox, Authentic seeks to succeed in all consumer touchpoints.

The identical sort of pondering led to Authentic purchasing the estates of some iconic celebrities similar to Elvis Presley and Marilyn Monroe, where it could control how the brands are presented. With Marilyn Monroe, that ranges from collaborations with Walmart in addition to Chanel. And with stars who’re still alive similar to O’Neal, Authentic bought a 55 percent stake in his company so it could ensure it could “control the narrative.”

Woodhouse advised the audience, “Be a micromanager. I wouldn’t worry if someone says that’s not the approach to manage people. You could know what’s occurring in all facets of your online business. So don’t be afraid to micromanage and don’t break the promise to the buyer: be in stock, be friendly, and don’t make people wait to take their money.” 

“The mood at NRF was optimistic and clouded at the identical time,” said Shah Karim, CEO of Saferock, a technique and analytics consulting firm. However the NRF’s objective was clear, “to ignite desire and guide businesses safely through these difficult times,” Karim said.

“It’s not a peaceful sea ahead. You wish management to be vigilant and to guide businesses safely, and also you do want the team to be broader. They got to look to the surface to learn,” Karim said. “Vendors and retailers got here here to search for some inspiration, they usually need to encourage their customers. Through the duration of the convention, we saw a superb retrospective of where we’ve been through the 12 months. But what we’re all hungry for is to learn where we’re getting in terms of operations, customer engagement, their tastes are changing and what’s also really essential is that we (retailers) have to achieve back the trust of investors into the sector. Management has to learn and understand where the investors are at.”

Visitors at NRF’s Big Show used the newest technology to register and procure their identification badges.

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