Consumers picked up their spending last month as gas prices fell, and back-to-school shopping began. August retail sales rose by 0.3%, which is relatively unchanged compared to a year ago, but better than economists expected. Retailers are scrambling to prepare for the holiday shopping season, with many companies citing issues offloading old inventory. Bryan Eshelman, Managing Director at AlixPartners, breaks down the August spending data and forecasts holiday sales growth amid higher inflation.

Opening Bell

Retail Sales Growth Sluggish in August as Consumers Fight to Keep Up With Inflation

here to break it all down, is brian Eshelman, managing director at Alixpartners, Thank you so much for joining us this morning, wondering what your reaction is to this august data. Yeah, I think it's a surprise slightly on the upside. I think as you mentioned, gas prices coming down is uh you know, helpful to consumer spending, but there's a lot of promotional intensity out there in the marketplace today with retailers, as you mentioned, trying to offload inventory that is much higher and then they wanted to be much higher than last year and so taking advantage of the back to school traffic, um that comes back every year and um, you know, you know, deal seeking, you know, I'm not surprised that retailers are really trying to get uh that that inventory out of the system as fast as they can, If you had to pinpoint which factors do you think are going to be lifting consumer sentiment moving forward until we get to 2023. Um I think again, I think gas prices coming down is such a highly watched figure um that people, you know, interact with on a daily or weekly basis, and so people really into it that as a barometer for overall price uh, movement in the economy. Um but certainly, you know, that could change, you know, there's some predictions out there, that gas prices will start to reverse and go back higher into the fall. Um and we'll, so we'll see how that goes. I think, you know, the other factor that uh consumers will be really looking at is price levels overall, it does take a few months for consumers to really realize and understand how prices have changed and with inflation at the level that that, um, you know, this is gonna be certainly weighing on minds of consumers into the fall and I don't, I don't know that there's a lot of good news coming outside of those things. Yeah, especially is when we talk about gas prices, we've heard from some analysts that are concerned, this is probably the lowest they could be for some time. And you mentioned some of the factors that play into that, the geopolitical tensions abroad. But I also want to switch gears to this poll by morning, consult showing more than half of consumers are either somewhat or very concerned about staying within their holiday spending budgets with 80% expected to be affected by inflation if spending does slow further this holiday season. What does this mean for retailers? I think it spells a lot of trouble. You know, retailers are like, we've talked about sitting on a lot of excess inventory, both in terms of inventory that arrived late due to the supply chain disruptions in the earlier part of the year and inventory for the fall that arrived earlier because a lot of retailers and reaction to those disruptions place their orders much earlier than they normally would have. So now they're sitting on kind of a double whammy of excess old inventory and early arriving new inventory and with consumer spending, you know, starting to lose a, you know, coming onto a shaky foundation. I think that spells a lot of trouble for retailers. So my advice to them is To strike early and often try to take advantage of the traffic and the, and the remaining positive sentiment that there is now and not really hope for consumers to save the day later in the later in the fall. We're seeing that consumers are um, indeed, um, you know, very much thinking about spending, uh, lower amounts this fall. Our survey indicates 4-7% increase in the fall season. It's actually less than inflation, which translates to lower volume for retailers. It's also interesting when you look at previous perspectives in relation to inventory. Typically we see a lot of these retailers stocking up and having that inventory is a good sign for the holiday season, but this year is just so different, Kohl's Macy's Nordstrom, other retailers all citing difficulty moving that excess inventory that you talk about on both sides. How do you think this is going to impact those corporate profits this quarter? Uh, they're going to be taking markdown. So, you know, in, in trying to move through all of this inventory. Uh, you know, there are some retailers that moved pretty aggressively, You know, target was very public and um, you know, getting rid of inventory earlier in the year. Um, there's other retailers that have not moved as aggressively and, you know, so we will we will see how that shakes out, but I think that in general, uh, you know, there's going to need to be a lot of deal making a lot of sales to, to drive volume and to clear the inventory out to start fresh for the new year. And I think consumers are in a mood where they're willing to both trade down on brand and they're in a mood to wait for deals. Um, and um, you know, we'll see that, uh, I think, um, you know, come to roost for retailers this fall because of these markdowns, obviously that's not a great indicator moving forward for a lot of these profits and earnings reports to come. But what do you think this also says for these retailers when it comes to hiring, it's one of the only things that we look to when it comes to the fears of recession as being a bright spot in our economy right now. Are you starting to see any of these effects trickle down into a typical holiday hiring season? No, not yet. I think um you know, by and large, what I've seen is that retailers are really still in a in a market that's, you know, difficult to find labor, um, both in retail environments, distribution settings. Um They are really still leaning into trying to staff up for the holidays and to be able to service the demand that they do see. Um So I don't, I'm not seeing cutbacks on that front at this point. Um I think, you know, they want to put their best foot forward and be prepared to capture as much sales as they possibly can and and uh in many cases that requires the people to do it, and brian, before we let you go, just one more general holiday shopping forecast, if you can share it. And my bigger question is also, as we look at this holiday season, it is certainly different than the past few years over the course of this pandemic, Do you anticipate a lot of these changes that retailers are making because of these macroeconomic conditions, stick around moving forward now? Yeah, I think the consumer has spoken in terms of how they like to shop and we're seeing record levels of intent to shop solely online, this offseason or this, sorry, this holiday season. And so I think as retailers uh, see more and more online business, our research shows that that sees them seeing lower profitability because online businesses Um you know, by and large more expensive for them to process. And so retailers going forward are really going to a need to adjust their operating model for this new reality of 40-50% of their sales being online and it's no longer an afterthought, they have to think about how to restructure their operations to make that as profitable as possible. Okay, brian Eshelman Managing Director at Alixpartners, thank you so much for joining us and offering up that perspective today.