The Big Picture
Although inflation numbers have been slowly coming down, overall retail sales took a dip in December, declining 1.1%. This was the biggest drop in a year, and was partly pinned on consumers shifting their spending to service categories, economists said. Last month’s severe cold snaps also likely chilled sales.
Fortunately, employment numbers remain firm, and The Personal Consumption Expenditures price index, a key indicator, was just 5% higher in December. This was slower than the previous month’s reading.
Fourth-quarter GDP also came in higher than expected, growing by 2.9%. But, the mix of different indicators have left the stock market a little shaky. Layoffs in the tech sector have also given investors a bit of a scare, but we are not seeing layoffs in the wider market, which is a key recession indicator.
Among our client stores we saw small gains last month, in fact as a group our client stores came in almost exactly on plan, although some did better than others.
Both menswear and women’s wear were up by about 4%. This mirrored the National Retail Federation’s calculation of 5.3% growth over the whole holiday period.
The big difference came in demand for special order goods, where women’s wear fell by 18% against last year, while menswear posted a 14% gain. The fact that menswear has kept up this momentum for so long makes us think that there has been a bigger shift in how men view the importance of dressing well.
Inventory Inches Up
We’ve been warning about climbing inventory levels for the last several months, and holiday sales did not clear out the backlog.
Interestingly, women’s wear did even business with last year in December, even though their inventory was up by an average of 25%. These growing inventory levels are still a concern because even if we make small, single-digit gains this year, we will be hampered by double-digit gains in inventory.
Another issue with excess inventory is that it mostly comprises of basics, not the seasonal goods we need to keep customers coming back. So, our advice is to mark down these aging items as soon as possible to make room for higher-margin goods.
So far in January business has still been brisk in our client stores. For the next few months we are planning small gains of around 2%, heading into spring. The good news is that inventory is more available, so you want to look for the special items that have kept customers buying at our stores, rather than the big chains, which have seen a recent downturn.
Unique products will also help you maintain some of the higher margins that we have become accustomed to over the last couple of years.
You need to keep your focus on margin as the sales cycle slows. Work toward leaner inventory levels with fewer markdowns after you have cleared your excess goods. As we learned coming out of the pandemic lockdowns, you can still keep sales churning with less merchandise, and even slightly higher prices.
Blacks’ Bottom Line
Although sales may still be strong in your store, don’t ignore growing inventory levels, since they could catch up with you later this year.