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Goldman Analyst Unpacks ‘Scary’ Holiday Planning Scenario: Week Ahead

Retailers that bungled first-quarter merchandise could face a rocky road ahead of the holidays.

Walmart and American Eagle Outfitters said shoppers’ fast-changing interests caught them off guard and ill prepared. Inflation also forced many consumers to tap the brakes on purchases like new fashion that aren’t quite as critical as putting food onto the table or fuel in the car.

Retailers have to walk a tightrope if they want to nail the assortment mix, Goldman Sachs retail analyst Kate McShane said at Wednesday’s “Consumer Supply Chain Crisis” media briefing.

Merchants rushing inventory in early to sidestep bottlenecks and hiccups could be “a little scary,” McShane said, depending on “what kind of macro environment [we are] going to be in in the back half of the year.” A worsening economic climate could spell massive, margin-killing markdowns.

On the upside, however, scarce supply plus strong demand equals healthy fundamentals. “If we’re going into an environment where we’re going to see a little bit less demand because of how the consumer is feeling and maybe a little bit more supply because these retailers are still trying to chase categories because of the congested supply chain, it does increase the risk for markdowns in the back half of the year,” McShane said.

July’s Amazon Prime Day could jumpstart the sector by incentivizing people to shop right as the big back-to-school season kicks into high gear.

Still, “demand is going to be meaningfully weak for the consumer,” said Jason English, an analyst on Goldman’s equities research team covering consumer staples. “We’ve never had a contraction without a recession.”

Economists focused on bank accounts and “robust balance sheets” that still can be tapped for spending don’t see a recession on the horizon, he added.

Jordan Alliger, who covers transportation at Goldman, warned of a cargo crunch at the nation’s top ports in two months’ time.

The investment bank’s proprietary supply chain tracker has documented better cargo flow improvement versus January’s bottlenecks, Alliger said. A decline to 30 versus 106 ships idling off the southern California coast still amounts to “25 more than pre-Covid,” he said, pointing to similar  East Coast port congestion.

Shanghai’s emergence from COVID lockdowns could unleash a new wave of West Coast-bound cargo ships within 60 days, colliding with ongoing labor contract negotiations for the West Coast ports as the current deal is slated to expire July 1.

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