Retailers Trim Sales Forecasts
Large retailers including Target, Walmart and Kohls are increasing sales at slower rates than they did at the height of the pandemic. Rising rates of inflation are driving shoppers to curb purchases of discretionary items in favor of staples like groceries.
Spending pull-back has been sharper than predicted. Consumer wallets are being squeezed, driving shoppers to be more mindful of what they’re buying. The result? Retailers are falling short on sales goals, inventory levels are rising, and retail executive turnover is higher is increasing.
Buy Now, Pay Later Space Experiences Hiccups
The state of the promising buy now, pay later payment concept, initially embraced by consumers and merchants alike, is experiencing a rising number of delinquencies in a slowing economy.
Buy now, pay later—allowing shoppers to split the cost of their purchases into multiple payments over time—gained popularity last year. Consumers with limited savings and lower levels of credit used the payment programs to pay for clothing, cosmetics, home appliances and other goods. While overall levels of bad debt are low, discontinuation of pandemic stimulus programs and increasing inflation are slowing the programs’ growth.
Lead Times Get Longer, Inventory Piles Up
Retailers are finding it difficult to match supply and demand. Shipping delays, port back-logs and other Covid-related supply-chain snafus are the norm. In response, chains including Target and Gap are building in more lead time from design to when the product hits shelves, but run the risk of consumers not wanting the goods by the time they show up.
The longer the lead time, the less accurate a retailer is going to be. When the order takes a year to 18 months to fulfill, merchants play a guessing game—and risk overstocking inventory that must be sold at a loss. Long lead times don’t accommodate shifts in taste, trends, and unexpected inflation.
Digital Payments Have More Growth In-Store
Consumer cash payments rose slightly from 2020 to 2021. Cash accounted for 19% of payments in 2020 and 20% in 2021, according to the Federal Reserve. (In 2019, cash was used for 26% of consumer payments.) During the same two-year time period, use of credit cards, debit cards and mobile payment apps increased as well.
The use of cash has steadily declined in favor of digital payments valued for convenience, security and benefits like loyalty points. When in-person shopping started to resume in 2021 however, the cash spend trend reversed slightly, reflecting increased spending across the board. Cash use will continue to decline, and digital payments will continue to grow.