It's the time of year when retailers count on holiday shopping lists to buoy sales into the end of the year. But with Christmas two weeks away, the list of headwinds has robbed retailers of any holiday cheer.
In a note to Retail Pro subscribers, Hedgeye's Retail team noted yesterday's hawkish CPI headline was just the beginning of the sector's issues.
"Interesting to combine that with scary rate of change to the downside for discretionary categories. Price hasn’t cracked in many categories of retail despite the pressure on the consumer, November was a clear downshift in pricing per the CPI report, and we think that downward pricing pressure is far from done as the consumer discretionary spending capacity continues to compress."
Notably weak trends included appliances, tools/hardware/outdoor equipment, new vehicles, sporting goods and apparel.
Retail analyst Jeremy McClean added commentary on this morning on The Call @ Hedgeye.
"The direction of these trends is concerning for retailers," McClean explained. "Companies have been trying to hold price as long as they can."
In addition to a tricky pricing environment, traffic trends have slowed following a brief uptick around Thanksgiving. Traffic this week slowed to -5.8% from -5.1%.
From today's Retail Pro note:
"Visits slowed across the board in our Industry sub-category sample this week. Often there is a divergence in rate of change between the more and less discretionary categories as consumers focus on one or the other, but in this current and coming economic environment, we expect all industry participants, discretionary or not, to take a hit."
Demography analyst Neil Howe chimed in with another challenge retailers are attempting to weather this winter.
Below is an excerpt from the bestselling author's note to Hedgeye's Demography Unplugged subscribers.
This holiday season, many retailers have adopted a “keep it” return policy. Instead of giving back unwanted merchandise, customers can keep the items free of charge.
According to estimates from Optoro, Americans are expected to return $173B of merchandise this holiday season. That’s a +28% Y/Y rise. But increasingly stores don’t want to deal with these returns.
A goTRG survey of 22 major retail chains found that 13 stores have adopted a return policy where shoppers keep some of their unwanted merchandise. That’s more than double the number of stores that had a similar policy in 2022 (6). The survey did not disclose the names of the companies who use this policy: They fear customers will abuse the perk. But according to Reuters, shoppers have reported “keep it” policies from Amazon (AMZN), Chewy (CHWY), Keurig (KDP) and Wayfair (W).
So what’s behind this trend? For one, returns have increased due to online shopping: Customers often change their minds when they see items in person. Moreover, the average return costs retailers about $30. Many stores believe the time and cost of processing these returns aren’t worth the effort.
Of course, shoppers could take unfair advantage of these policies. They could “return” an item to get it for free or even resell it. A few stores say they track the number of returns linked to an account. But tracking, flagging, and limiting the number of returns allowed to each customer is also a significant cost. And many retailers may not want to bother with that cost either.
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