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Inflation, Inventory Issues to Plague Retail Through Holiday

At Texworld’s summer edition held July 19-21 at the Jacob K. Javits Convention Center in New York, the event championed wellness-inspired themes such as Color Therapy, Future Craft, Hyper Nature and Spirit Quest for upcoming seasonal trends.

Back in person for the first time since 2019, the event garnered collegiality that was fitting for a season that proffers a lively tone, with collections across textiles and denim exhibiting a sense of brightness and levity at a time of instability in the market. Tricia Carey, director of global business development, denim and Americas, Lenzing Group, told Sourcing Journal that the textiles segment itself is in a moment of transition.

“The textile market is on a rollercoaster ride with increasing raw material prices. Some natural fibers have been at record highs, while Tencel fiber prices exhibit lower volatility. It is very difficult to plan six to nine months or even one year when there is instability.”

As prices continue to skyrocket across all sectors, consumers in turn, are purchasing less. What does this mean for sales today and through the holidays?

This was the theme of “U.S. Economic Outlook: How Will It Affect the Consumer Market,” a panel at Texworld that featured Gretchen Jezerc, senior vice president marketing at First Insight Inc., Edward Hertzman, founder and president at Sourcing Journal, and Mark Cohen, director of retail studies adjunct professor at Columbia University, weighing in on obstacles ahead for the retail market.

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According to Jezerc, the fashion categories suffering the most today are footwear, accessories, jewelry and “ironically” casualwear. “People bought up a lot of loungewear during Covid, and now that’s not an area where they want to buy as much,” she said.

Conversely, outerwear and athletic apparel have been faring the best during challenging economic times as people still want to “get outside and move around.”

However, the success might begin to dwindle as inflation increases. In fact, as much as 75 percent of American consumers are living paycheck to paycheck, including Gen Xers with incomes of $100,000 or more, according to Cohen. Additionally, most American consumers have no experience with inflation.

“Many are too young to remember the spike in inflation in early 1980 when interest rates were almost 80 percent, and prices here started to reflect prices in South America,” Cohen said. “So, this is a shock that they don’t have any reference points to gauge.”

Economic turmoil is also roiling the labor market. When the pandemic began, many employers had to let workers go. However, government stimulus funds allowed unemployed people to function economically.

With the economy trying to revert to normal, companies are “having a terrible time” trying to bring workers back. In addition to workers subsidized by government funds, many just no longer want to return to a fixed workplace and have gotten comfortable with remote living and working.

However, supply and demand misalignments reaching a tipping point with labor shortages will have an “inevitable” negative effect on the economy, Cohen said.

Holiday decline to accelerate correction

Compared to last year, inventory is up by approximately 26 percent, according to Jezerc. Additionally, three-quarters of consumers feel “less confident” now because of inflation and the economic situation. In fact, 94 percent of consumers are cutting back on their spending. This has lead to massive markdowns, most notably at Target and Walmart which have both recently issued profit warnings.

So, with inventory up and consumers’ desire to spend down, Jezerc and Cohen both predict that discounts will slowly return.

“All of a sudden, demand faded. So where are the goods?” Cohen said. “Well, they’re on the shelf, in the warehouse, on the water and in containers. Whenever there’s more inventory than necessary, the unsold goods get discounted and liquidated in one way, shape or form.” 

While online sales soared during the pandemic due to store closures, Jezerc said a “correction” is bound to happen this holiday season.

In 2021, retailers had less inventory. That means consumers were paying higher prices to purchase that “must-have” item, leading to a successful 2021 for retailers. However, many took that success and ran with it, without thinking through the long-term ramifications.

“It amazes me that retailers didn’t say, ‘let me have a responsive supply chain’ or ‘let me keep my cash flow strong,’” Hertzman said. “Instead, everyone went out and bought even more, aggressively hoping they could comp against 2021 or 2022, resulting in multiple problems.”

To get through the holiday in “one piece,” Cohen recommends bringing inventories and labor costs down below last year even at the risk of losing business and suffering a loss of customer service.

“There’s too much uncertainty and using last year as a comparison is a fool’s effort,” Cohen added. “If they power their inventory up or allow their inventory to stay high, they run a terrible risk of getting killed.”