Every year at about this time, Charles Dickens comes to mind – not because of the seasonal favorite, A Christmas Carol, but because of the opening lines of A Tale Of Two Cities: “It was the best of times, it was the worst of times….”. Those lines could easily have been used in the story about any modern retailer as we head into the final stretch of the 2022 holiday season. 

We’re living in a time of extraordinary uncertainty; consumers are still trying to extricate themselves from all the chaos of the COVID pandemic, urban downtown areas are almost begging employees to come back to the office, supply chains are still disrupted, retailers are dealing with huge shifts in consumer behaviors, and forecasts are based on baseline data from 2021 that is iffy at best. The dreaded COVID virus hasn’t gone away, and public health officials warn of a tough flu season ahead.  And then there’s the economy; I’ll leave reviews of that issue to The Economist or the Wall Street Journal, but suffice it to say that it’s messy out there.

All of this uncertainty makes retailers really anxious at a time when companies are already heads-down in executing on their sales plans with fingers crossed that their sales and profit projections are at least close, if not correct. There are so many variables that it’s much more of a guessing game than usual. But it’s helpful that there is lots of information available that can help retailers get a sense of how the remainder of the year will play out. For example, some tech firms have been trying to shine a light on market conditions. In the US, the Federal Census Bureau continues to publish its projections, and trade organizations like the National Retail Federation (NRF) are keeping a close eye on factors that can affect the industry. And of course, retailers themselves publish their expectations.

Let’s take a look at some of what these information sources are saying:

When it comes to projecting sales, most are projecting a decent top line – although nothing like last year.  For example, the NRF “forecast …  that holiday sales will grow between 6% and 8% over 2021 to between $942.6 billion and $960.4 billion. The forecast follows last year’s 13.5% growth driven by pandemic factors and is well above the 4.9% average over the past 10 years.” (According to a statement released on November 4^th).

In September San Francisco-based Salesforce offered insights based on an analysis of the billions of transactions it processes on its Commerce Cloud platform. “Overall online spending will remain strong when compared to pre-pandemic. The surge in online spending will remain relatively unchanged compared to last year. Digital sales will continue to dwarf pre-pandemic levels (up 55% globally and 61% in the U.S. at a 3-year growth rate compared to 2019 sales). However, they’ll remain essentially flat compared to 2021 … Consumers’ total online orders will drop 7% compared to the 2021 holiday season (5% fewer in the U.S.). The increasing costs for suppliers, labor, and transportation will outpace retailers’ ability to pass costs onto customers, putting 10% of profits at risk for retailers and brands…”.

These projections seem to follow the trend the U.S. Census Bureau reported at the end of the 2^nd Quarter:  “Seasonally adjusted after-tax profits of U.S. retail corporations with assets of $50 million and over totaled $43.5 billion, up $8.9 (±0.3) billion from the $34.6 billion recorded in the first quarter of 2022, but down $27.3 (±1.4) billion from the $70.7 billion recorded in the second quarter of 2021.”

A potential wrench thrown into the works is consumer confidence. Inflation and fear of a recession has stirred a lot of anxiety with consumers. Last month, the Conference Board (a non-profit that tracks consumer confidence) made this statement: “… concerns about inflation picked up again, with both gas and food prices serving as main drivers… Looking ahead, inflationary pressures will continue to pose strong headwinds to consumer confidence and spending, which could result in a challenging holiday season for retailers. And, given inventories are already in place, if demand falls short, it may result in steep discounting which would reduce retailers’ profit margins.”

What’s the Prognosis?

There is a Chinese curse that says, “may you live in interesting times!” In 2022 retailers were coming off of a good, albeit hectic, year.  Consumers had money and showed the willingness to get out and spend it.  But fears of recession triggered by world events (most consumers today have vivid memories of the Great Recession of 2008-12), by heated political rhetoric, and by the choppiness of the supply chain all play a part in creating uncertainty. Some industry analysts are warning about consumers pulling back just as the busiest part of the year is coming up.  We’ll see!

Number crunchers expect “soft” demand for the rest of the year, and that retailers will need to offer sharp discounts to clear inventories. And so retailers are fastening their seat belts. The best that can be said is that it’s all part of a cycle.