That leaves many retailers overwhelmed. So they are cutting prices to clear shelves and warehouses.
According to retail intelligence company Edited, sales of discounted U.S. clothing, shoes and accessories are up this year compared to 2021. The markers are also steep. And it’s a similar picture in the UK.
The reductions are not limited to clothing. Furniture, electronics, bicycles, sneakers and scented candles are on sale after retailers from Best Buy Co. to Base & Body Works Inc. warned about sales and profits. U.S. online prices fell for the first time in more than two years in July, according to Adobe Analytics, with big discounts on electronics, computers and toys, while prices for food and pet supplies remained high.
This is creating a mixed picture for the back-to-school season. According to the data provider NPD Group, the average selling price is increasing in most categories. But thanks to more promotions, they are falling in clothes and shoes. That’s not just good news for struggling parents, but the rush of discounts may be helping to ease inflation in the broader economy, feeding the narrative of a soft landing. It is showing. In fact, June’s decline in clothing prices was one of the reasons for the moderate U.S. inflation in July.
However, consumers and policy makers should not take the current situation for granted. In the wake of the Great Inflation Summit, consumer goods companies will soon begin reassessing their purchasing strategy.
A year ago, retailers stockpiled in the second half as supply chains became increasingly weak. They were more concerned about not disappointing customers with empty shelves than how this would affect inventory. That eventually led to overlap.
At the same time, there is growing evidence that poorer consumers are becoming more cautious – with some early signs that price pressures are increasing on the income ladder. And although the supply chain isn’t fully back to normal — Target described it as “spotty” on its first-quarter earnings call — Asian factories are open, containers are available and freight rates are falling.
All these factors mean that retailers are reducing orders for the upcoming winter holidays. Walmart, Target, Home Depot Inc. and Kohls Corp. All will update their inventory positions next week with their earnings.
Over the next few months, if stock levels rebalance, profits clear, and smaller autumn and winter orders start to come in, discounting should begin to stabilize or decline. This will be good for retailers’ profits, which need to reduce price gouging and damaged products. But it won’t bode well for stretched consumers.
However, if expectations for a soft landing are too optimistic, and Americans cut back on rational spending even more, stores may continue to struggle to clear inventory, and even reduced inventory may outpace consumer demand. That extends discounts into the fall and winter.
The back-to-school shopping season should give you an idea of which situation is more likely.
In the four weeks through the end of July, back-to-school sales volumes were 1% lower than in 2021 and 13% lower than in 2019, according to NPD. But with higher prices in many categories, dollar sales should outperform units sold. It’s also early in the season. Still, it’s worth remembering that last year parents were flush with cash from savings and incentive payments, while kids could be learning in person for the first time in over a year.
Back-to-school is often a good indicator of consumer demand for the winter holidays. This will be truer than ever this year.
This column does not necessarily reflect the views of the editorial board or Bloomberg LP and its owners.
Andrea Felstead is a Bloomberg opinion columnist covering the consumer goods and retail industry. She was previously a reporter for the Financial Times.
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