Fashion companies estimating future sales and planning how much to produce for upcoming seasons are wondering if the consumer is healthy enough to spend through historic inflation.
Sources have noted a dip in ocean freight rates over the past month, which dovetails with recent data documenting a modest decline despite prices remaining higher than they were before the pandemic. Some worry the relief won’t last.
But that’s not the only concern coming down the pike. Anti-Covid lockdowns in major Chinese cities trickled down to affect production, which in turn seems to be contributing to the freight-rate decline. On top of that, some companies are securing longer-term capacity through contract pricing.
But logistics experts believe the backlogs will come roaring back once Chinese production gets back to normal as a flood of product will hit carriers all at one. One source expects air freight rates to soar this summer thanks to retailers rushing in back-to-school merchandise. Most retailers plan to promote back-to-school assortments from mid-July through mid-August, though some floor sets could arrive in July, according to one retail consultant, who said the geopolitical climate as well as the ongoing pandemic will influence retail planning.
But apparel firms are in a “quandary,” according to one former retail executive, who said many are struggling to “figure out the consumer.”
“The first quarter for retailers is typically the slowest period of the year, but they’re still getting goods to prepare for second quarter” starting in February, the former executive said. “So a slowdown in container spot rates could mean there are fewer orders because the consumer has started pulling back as prices climb due to inflation-related spikes.”
At the J.P. Morgan Retail Round-Up conference earlier this month, Macy’s Inc. chief financial officer Adrian Mitchell said the biggest challenge right is figuring out if consumers will be “spending on discretionary items that we sell” or on travel and entertainment.
The National Retail Federation projects 6 percent to 8 percent sales growth this year, or $4.86 trillion to $4.95 trillion, though inflation remains a challenge.
Economists at Wells Fargo on Thursday said they expect a slowdown in economic growth, given the continued supply headwinds and Federal Reserve moving to raise rates.