What is Concerning Retailers Right Now?
With Black Friday and Cyber Monday 2022 behind us, what is concerning retailers right now?
First looking at Black Friday, the preliminary data from Sensormatic Solutions reports that instore shopping on Black Friday showed a 2.9% foot traffic increase over 2021, and in store shopping on Thanksgiving showed a 19.7% increase over 2021. The mall traffic increased 1.2% and non-mall traffic increased 4.7% over 2021. Mastercard SpendingPulse reported that instore and online sales were up 12% (not adjusted for inflation) over 2021, with apparel, electronics, and restaurants among the top performers.
According to Adobe Analytics online sales on Black Friday reached $9.1 million, which is a 2.3% increase over last year, though that percent increase was less than the 8% inflation rate.
Cyber Monday sales hit $11.3 billion, up 5.3% over last year, with that sales increase also below the level of inflation.
This data seems to indicate consumers are still buying and are taking advantage of retailers’ needs to reduce investment in inventory. But consumer spending is not keeping pace with inflation. These factors are concerning to retailers because many are experiencing stuffed supply chains, incorrect product mix, and rising purchase prices for salable goods. The fact that consumers are not increasing spending as much as inflation is increasing, and many retailers have increased their discounts and extended the discount periods, means the financial performance of retailers will be tricky for Q4 2022 and in to 2023.
What are some trends to be aware of?
From a retailers’ perspective there are a few key trends to be aware of in 2022. Organized retail theft and the migration to more rural areas are two key trends.
Organized retail theft, sometimes referred to as ORT or ORC, is crime managed by criminal organizations who organize groups of people to steal goods from retailers and then resell the goods to consumers. This is not retail theft by consumers who need or use the goods that are stolen. This is organized crime to generate revenue via product resale, specifically in states or locales where prosecution of retail theft is not as robust. This organized retail theft costs US retailers $700,000 per billion dollars in sales or 0.07%. While this percentage may be small compared to overall sales, the trend has a significant impact on stores and the employees and owners of those retailers. From 2017 to 2022 organized retail theft has doubled in impact. The retail losses to overall theft were estimated at $69 billion in 2019 and increased to $94.5 billion in 2021. Many attribute the continued growth in online sales to the safety concerns at retail shops specifically resulting from organized retail theft.
Looking at stores opening and closing by year, the pandemic shut down year was the worst for retail store closures with 12,200 reported closures. But it is interesting to look at demographic trends and their impact on retail locations. The net flow of people out of urban neighborhoods between 2017 and 2019 average 28,000 people per month. After the pandemic hit in March 2020 the outflow of people increased to 56,000 per month. These means stores are closing in some areas and opening in others. Recent reports have shown increasing store openings by discount operations such as Dollar General.
The combination of organized retail theft and the existing trend to online retailers seem to be working together to further increase the stress on individual businesses. The news media regularly reports on business owners who elect to shut down their brick-and-mortar locations due to theft losses and safety fears. Small businesses report that 54% have seen an increase in shoplifting during 2021. The increased online sales during the 2022 holiday shopping season of Black Friday / Cyber Monday bear out these observations.
What does this mean for working capital management?
Whenever inventory is discussed, working capital management needs to be considered. We continue to see increased inventory levels, higher per unit values, and more units on hand. These factors are stressing working capital.
Many retailers will use Q4 2022 as an opportunity to reduce investment in inventory and that will help working capital management. Moving into 2023 the product mix and delivery systems to consumers will continue to evolve as consumers deal with the impacts of inflation.
Forecasting working capital management through Q1 of 2023 is a key component of a successful working capital management plan.