June ’22 Retail Report: Inventory Levels Climb As Sales Cool

The Big Picture

Overall retail sales fell 0.3% in May, while sales of clothing and accessories inched up 0.1% over April, according to the National Retail Federation. Last month is when we began to see a general decline in demand after 14 months of straight gains, as rising inflation and gas prices took their toll.

U.S. inflation for the 12 months ending in May 2022 clocked in at 8.6%— the highest annual increase since 1981– resulting in a stock market correction. These flashing warning lights were reflected in The Conference Board’s May Consumer Confidence Index, which hit a three-month low of 106.4. However, the Board noted that this is still a relatively strong reading.

The real test of consumer confidence will be how long these inflationary pressures persist.

May Sales

Among Blacks’ clients we saw a modest softening in sales last month, with menswear down 2% overall, and women’s down by 5%. Trending categories included men’s Clothing, and women’s Dresses — ones that already had momentum in spring. The special events that people had to push off during the pandemic are happening now, so we are still seeing demand for dressier items.

But our real concern is the growing levels of inventory, which are far outstripping sales gains. On average we are seeing a 23% increase in inventory compared to plan among our client stores.

With sales slowing and inventory climbing, merchants are facing the perilous position of having to mark down more goods later in the season, diminishing their margins. Since the beginning of the recovery our markdown levels have been moderate, helping retailers bank cash. But now we look to be heading toward a cycle where markdowns will come earlier, and deeper.

Holiday & Spring ’23 Planning

Most of the merchandise for Fall and Holiday ’22 has been bought already, but if you see a slowdown in your business you need to make adjustments as soon as possible. Take a close look at your cancellation windows, and revise your sales plans on a weekly basis if need be. Having a flexible planning process in place will help you navigate the next several months as we come down from the high sales curve produced by pent-up demand.

We’ve already planned most of our clients flat for Spring ’23. This is a best-case scenario, given that many stores are coming off of the best year they’ve ever had, so make sure you’re playing it conservative.

While stores in tourist and business destinations may be more immune, suburban stores are more vulnerable to rising inflation and waning confidence.

Blacks’ Bottom Line
Take a second look at your Fall ’22 and Spring ’23 plans. You will likely need to adjust them for the cooling off that we’re seeing across the country.