WWD Digital Daily

Despite Headwinds, Retail Sales Are Pegged to Grow

● Guest columnist Ian Fredericks says despite high borrowing costs and tight credit conditions, a robust job market and wage increase are set to drive retail sales.

- BY IAN FREDERICKS

Although high borrowing costs and tight credit conditions persisted for consumers, a strong job market and rising wages helped fuel consumer spending during the holiday shopping period in the final months of 2023.

Prior to the holidays, I stated my belief that — on a non-inflation adjusted basis — retail sales would increase 3 to 4 percent year-over-year, meaning it would keep pace with inflation. As predicted, total retail sales for the 12 months ended December 2023 were up 3.2 percent over the previous year, with holiday-focused sales during the final quarter of the year up 3.8 percent to more than $964 billion, according to the National Retail Federation.

According to the U.S. Commerce Department, during the final month of 2023, sales at stores that sell general merchandis­e rose 1.3 percent and those that sell clothing and accessorie­s increased 1.5 percent. With the housing market still struggling — mostly because of “inventory” shortages driven by higher mortgage rates and homeowners' desire to stay put and keep their existing, lower mortgage — furniture and home furnishing­s sales declined 1 percent. Restaurant sales remained unchanged month-over-month and online sales increased 1.5 percent.

Outlook

We expect that the continued slowdown in inflation and the surprising­ly robust increase in U.S. jobs added during January (employers added a whopping 353,000 jobs during the first month of 2024, alone) will bolster overall retail volume growth throughout this year, although depleted consumer savings, coupled with the high cost of food, is likely to limit the extent of that growth.

Retail brick-and-mortar stores will see sales increases, with discount retailers expected to perform particular­ly well in light of the factors referenced above. The foot traffic data trend has been positive for stores, with more strained consumers now returning to those physical locations to hunt for bargains in person. This has been spurred on in large part by the fact that once-generous online shipping and return policies have now been diminished or rescinded by many online sites. Given these and other developmen­ts, we are beginning to see more retailers explore targeted store expansion in the U.S. and elsewhere. With that said, we also expect significan­t retail store closings, which will likely result in a net reduction in stores over the course of 2024.

Strategic technology investment

August 2023 survey data from Legion Technologi­es indicates that more than 62 percent of hourly employees had plans to leave their jobs within the coming 12 months. Retailers have been witnessing the exodus firsthand and scrambling to solve for the issue, which is impacting operations and bottom lines on a widespread basis. One solution has been to seek out younger, hourly workers to help bridge the gap, but this approach brings a fresh set of complicati­ons, including the younger generation's focus on social responsibi­lity and work-life balance. As the bargaining power of this younger group increases, retailers are faced with providing more competitiv­e benefits and pay.

The technologi­cal prowess of younger workers entering the retail ranks, however, can play positively into the hands of operators who are moving toward putting more advanced tools in the hands of frontline workers to gain efficienci­es, better serve customers and improve their employee retention. Among this new breed of tools are offerings that require no IT integratio­n cost and can operate on employee's own handheld devices, delivering powerful collaborat­ion and merchandis­ing features.

Additional­ly, since ChatGPT became a household name, artificial intelligen­ce has been the rage. While artificial intelligen­ce has been used in recent years to aid in retail forecastin­g and supply chain management, the potential of generative AI is now enabling retailers to get closer to consumers by assisting them to identify products and services that best suit their needs and budgets under a wide range of circumstan­ces. From compiling recipes and menus for themed gatherings to putting together outfits for special occasions or decorating rooms in specific styles, this technology can enable retailers to help shoppers search for products based on custom use cases rather than product by product or category by category.

By investing in these capabiliti­es and implementi­ng them in this manner, operators can engage in a more relevant dialogue with consumers, provide them with a personal shopper-like experience, keep them within their branded universe longer and link suitable recommenda­tions to in-stock inventory that can then be added right into online shopping carts. This, in turn, can help to build brand preference and loyalty. However, retailers should be cautious about investing in this technology as it is in its infancy. Moreover, many technology firms overpromis­e and underdeliv­er, some are even using humans located overseas to provide their so-called “AI,” while they continue to develop an actual AI capability behind the scenes.

Purposeful merchandis­ing and buying

As we head into spring, we believe retailers should now be placing significan­t emphasis and effort on promoting and moving clearance merchandis­e. In addition to driving traffic, doing so will also create immediate liquidity (which many operators need right now), while limiting the costly burden associated with packing, shipping, storing and shipping that merchandis­e again at some future point in time — either to other store locations or future buyers of that excess, aging inventory.

Operators would also be wise to recognize that the consumer still remains largely constraine­d right now. For that reason, demonstrat­ing restraint by limiting buys on non-needle movers is strategica­lly advisable during 2024. When all is said and done, it is likely going to be more advantageo­us to run out of merchandis­e that sold at full price this year that it will be to have to discount it deeply to get rid of it late in the season.

 ?? ?? Ian S. Fredericks is president of Hilco Consumer-Retail, Hilco Global's retail-focused group.
Ian S. Fredericks is president of Hilco Consumer-Retail, Hilco Global's retail-focused group.
 ?? ?? Hilco's Ian Fredericks sees retail sales growing despite headwinds.
Hilco's Ian Fredericks sees retail sales growing despite headwinds.

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