As we reach the midway point of 2023, the state of the retail industry can best be described as "it's complicated."
The recently released retail sales data by the US Department of Commerce for June sheds light on the industry's performance during the first half of the year. So far, retail has managed to achieve $3.5 trillion in sales. However, when comparing this figure to the same period last year, there has only been a modest increase of 1.9%. If we adjust this growth to 2019 dollars for inflation, we actually observe a decline of 2.8% compared to the previous year. This slowdown is noteworthy, considering that the years 2020 to 2022 were marked by unprecedented growth in the history of retail.
The current situation presents a paradox where macroeconomic indicators show signs of improvement. Inflation is returning to historically normal levels, economists are predicting an economic soft landing, and there is robust employment with rising wages. Despite these positive factors, consumers are showing decreased spending on goods, particularly non-essential items.
Predicting the trajectory of retail for the latter half of 2023 has become a challenging task. Forecasts for the back-to-school season vary significantly, ranging from a pessimistic -10% projected by Deloitte to an optimistic +21% projected by NRF (National Retail Federation). Consequently, the outcome is uncertain, leaving us with no definitive answers.
In light of this uncertainty, retailers must be prepared to tackle the diverse range of consumer behaviors they are likely to encounter in the latter half of the year. Implementing robust scenario planning becomes imperative to adapt and respond effectively to the unpredictable shifts in the market.
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