Retailers and manufacturers have a consumer spending problem, but if they fix it now they could stave off a downward spiral.
U.S. discretionary retail sales fell 7 percent in March from year-ago levels, while unit sales were down 8 percent, according to Circana, formerly IRI and The NPD Group. This will likely hamper new product investments and disincentivize shoppers who already aren’t spending much on nice-to-haves like clothes and shoes.
The decline in unit sales is “double the average monthly declines in January and February,” Circana noted, adding that the steeper declines remained consistent during the last three weeks of March for both units and dollars for the first time this year.
“In order to create some spending elevation, there needs to be new products and new ways of thinking to reflect the changed consumer behavior and retail landscape,” Marshal Cohen, Circana’s chief retail industry advisor, said. This lack of newness is “one of the biggest retail casualties of the pandemic,” he said.
According to Circana’s proprietary data, new general merchandise products represented more than 5 percent of the market, but fell to less than 2 percent at the end of 2022. Companies during the pandemic put investment in new product development on hold due, instead focusing on supply chain issues, fulfilling demand and selling excess inventory.
According to Cohen, economic uncertainty is pressuring consumer interest in spending. That’s all the more reason that manufacturers and retailers “need to broadcast their value and prove their worth to the consumer now, in order to avoid a downward spiral later.”
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In short, a consumer pull back on discretionary spending is when retailers and manufacturers should be investing more on bringing new products to the marketplace to motivate people to buy.
On Friday, data from the U.S. Census Bureau showed that monthly retail sales for March fell 1 percent to $691.7 billion from the previous month, adjusted for seasonal variation, and was up 2.9 percent from March 2022. The data is not adjusted for price changes. Retail trade sales were down 1.2 percent from February 2023, but up 1.5 percent from year-ago levels.
Apparel and accessories sales were down 2 percent in March from the prior month, while department store sales were also down 2 percent. Sales at furniture and home furnishings stores fell 1 percent. Mid-March also saw the collapse of Silicon Valley Bank and Signature Bank, as well as the bail out of First Republic and the takeover of Credit Suisse.
In fact, Cohen’s point a “downward spiral” has already hit home for some retailers.
A study last month from BDO in its Bi-Annual Bankruptcy report found that six U.S. retailers already filed for Chapter 11 bankruptcy court protection just three months into 2023. Fashion firms are also adding to the bankruptcy count. Party City, Serta Simmons Bedding, Tuesday Morning, Sandwich, Scotch & Soda, David’s Bridal, and Bed Bath & Beyond have all filed this year.
Even worse is data from S&P Global Market indicating that billion-dollar U.S. corporate bankruptcies are on the rise in 2023. Companies with more than $1 billion in liabilities represented 3.1 percent of the overall bankruptcies tracked by S&P between Jan. 1 and April 4 of this year. That’s compared with all of 2022 in which a total of 14 companies reported more than $1 billion in liabilities, with only 1 during the same Jan. 1 to April 4 time period.