The Big Picture
Although the August inflation number of 8.3% shook investors, retail sales continued to notch up last month. Overall sales climbed 0.3%, which was better than expected, but mostly due to a surge in vehicle purchases.
There’s a lot of talk right now about coming layoffs, especially in mainstream retail channels, but jobless claims for early September actually dropped, meaning that the employment rate remains very low.
With this mixed economic data it’s difficult to say how retail sales will fare this fall, but many economists are now predicting an economic slowdown for the second half of this year, but not a recession. Recent interest rate hikes will certainly slow down borrowing, but so far consumers keep spending.
Even though we were going against a strong month last year, our client stores posted significant gains in August. Both menswear and women’s wear were up around 20% on average, with the same trending categories we’ve been seeing over the last several months: Sport Coats and Suits for men and Dresses for women.
This is great news, but at the same time we also continue to see inventory levels inching up, due to residual inventory left over after taking fewer markdowns.
This may not seem like a big deal, but consider this: if you have a $5 million business and you’re selling through 90% of your inventory for the season, you still have $500,000 worth of goods remaining. After three seasons that leftover 10% of inventory adds up to $1.5 million in residual inventory, which can become a problem. So, get back to taking more markdowns if you need to. They may not need to be deep, but they should be broader than they have been over the past couple of years.
Business in September has been good so far, according to our clients. With this momentum we should still have a pretty strong holiday season, even if it slows a bit before we get there.
That said, we have to be moderate given the economic landscape. Watch out for the upcoming 9/30 completion dates. We can’t afford to let inventory come in late, especially when we’re already sitting on extra goods. If you don’t have the business for late orders, cancel them.
It’s also time to get in your orders for spring of next year, which we think will be flat to slightly up compared with last spring.
The products for next spring look beautiful, but unfortunately we are still not seeing a lot of newness in the market. This could be problematic, since by next year our customers’ closets will certainly be full after such a long stretch of buying, and we will need something fresh to get them back in again.
Blacks’ Bottom Line
Pay attention to how your best customers are behaving. If they start to pull back on spending or cancel appointments, we will know that the slowdown is here.