Sustained consumer demand. Inflation trickling down. Another wave of wage hikes. Fed rate hikes. Good retail growth though less than 2021.
That’s what retailers can look forward to in 2022, according to executives prognosticating at the National Retail Federation’s annual “Big Show” convention and expo at Manhattan’s Javits Center this week.
Generally, optimism prevailed at the event, which ended Tuesday, with retailers and industry experts citing sustained high levels of demand, healthy balance sheets among retailers and consumers, and companies operating through the pandemic with greater agility and consumer centricism, a readiness to innovate, and better managed inventories.
They expressed renewed confidence in the future of brick-and-mortar stores — once thought as doomed to extinction — and the role they play in providing experiences and conveniences to shoppers and omnichannel opportunities for retailers.
But there was also all-too obvious uncertainty and anxiety over COVID-19, stalled vaccination rates in America, supply chain bottlenecks that are only slowly easing, and over how long consumers can withstand the record inflationary price increases seen in recent months — 7 percent in December.
Throughout the conference, concerns were voiced that consumer spending might take a sharp turn from goods to more spending on services and experiences, like traveling and dining out, assuming the pandemic subsides and life returns to some normality. Also worrisome was the December sales lag and whether it spills into 2022, though holiday 2021 sales overall were strong in last year’s extended season, where retailers unleashed holiday campaigns as far back as October.
Target Corp. chairman and chief executive officer Brian Cornell said he is more optimistic about business now than six months ago. Still, he warned as gas prices rise, in general consumers drive less, and consolidate the number of locations where they shop, which could translate into fewer trips to the malls to cut gasoline costs which are way up, averaging $3.30 a gallon. In addition, retailers are lapping last year’s government stimulus checks and enhanced benefits fueling spending.
“Principles we all learned during the pandemic are going to be as important in year three as they were in years one and two,” said Cornell when he addressed the conference. “There is going to be a continued importance of ease and reliability and the importance of safety, whether that’s putting Plexiglas up at the point of sale, putting signs up about social distancing or providing masks and other safety features, and giving the option, if you are not comfortable in the store, of using same-day (delivery) services. Those elements will continue to be important.”
According to Matt Shay, president and CEO of the NRF, consumers continue to be in a very strong healthy position because of the fiscal stimulus and not having been spending in non-retail areas of the economy, like travel and dining out.
Shay said he sees supply chain issues persisting for the rest of this year, and that it will take awhile for inflation to come back down. With nearly one million retail job openings in the U.S., Shay said it was imperative that people get back to work as soon as possible, and that the government stimulus program, while fueling retail sales, did exacerbate the labor shortage. As the stimulus money and benefits run out, more people will be motivated to seek jobs.
“I don’t remember a consumer backdrop this fluid,” said Brian Nagel, managing partner and senior analyst at Oppenheimer & Co. “We’re not seeing demand destruction from inflation, but you’ve got to think that at some point it happens. There are big risks out there; 2022-2023 could be extraordinarily fluid.”
Nagel predicted a wave of announcements about raising wages and said “the cluster of headwinds” in 2021 will continue into 2022, though there’s overall economic strength with consumer and business balance sheets healthy and consumers not overly leveraged. He said the major companies that he covers have been benefiting from inflation and have been able to pass along cost increases to consumers. Inflationary pressures are likely to persist for awhile really across the board, he said.
Nagel was on a panel on the retail outlook, along with Jack Kleinhenz, NRF’s chief economist, who said “the consumer continues to be a driver of the economy and retailers will have another good year. While retailers have been grappling with labor shortages, they have fine-tuned their labor scheduling,” Kleinhenz said. At restaurants, where wages are often lower than at retailers, the labor problem is believed to be more acute, he added.
Also on the panel was Shannon Seery, analyst at Wells Fargo Securities, who cited “a wallet transition” happening in 2023 whereby consumers pull back on spending for goods, and shift to spending more on services where inflation broadens. Retailers are not going to see the record gains of 2021, she said, noting they’ll be anniversarying the two rounds of government stimulus checks Americans received last year on top of the enhanced employment benefits.
“We’re looking to the Fed to raise rates four times this year,” implementing tighter fiscal policy, which has been relatively accommodative, she said. Mortgage rates are expected to rise, but the demand for new housing is still high, said Seery. “We will see how that demand will continue.”
Wells Fargo, said Seery, has calculated that ‘real’ holiday sales in the 2021 season, adjusted for inflation, rose 8.2 percent from the year before. With inflation, holiday sales rose 12.9 increase as reported by the U.S. Department of Commerce. Seery explained to WWD via email that, “To account for inflation, we developed a holiday sales deflator late last year, and when we adjust the nominal holiday sales estimate by that deflator it reveals real holiday sales rose ‘just’ 8.2 percent, which was actually a step down from the record 9 percent annual growth rate experienced in 2020. Inflation thus counted for roughly 5 percent of the nominal gain this holiday season.”
For all of 2022, Wells Fargo projects total retail sales in the U.S. to rise 5.6 percent, in nominal dollars, which may move a pinch lower after the weaker-than-expected December, following the 19.4 growth rate seen in 2021 from 2020 which was severely Covid-impacted.
“Over the past two years our willingness to embrace change, evolve and innovate was faster than anyone thought possible,” Mike George, NRF’s outgoing chairman, and former president and CEO of Qurate Retail Inc., said in his remarks to the convention. “We need to keep speeding up, keep doing more to delight our customers in this unpredictable environment.
“We have seen a tremendous recovery from the depths of the pandemic, with year-over-year sales growth for 20 consecutive months. Retail sales in 2021 grew 14 percent in 2021, the highest rate in over 20 years, on top of 7 percent growth in 2020 culminating in a record holiday season despite inflation, despite supply shortages, despite labor shortages and despite renewed concerns about the pandemic. Every category performed well.
“Most striking about our industry is the broad and balanced performance we are enjoying,” said George. “The number of U.S. stores hit its highest level in a decade in Q2 with over 1 million stores. Retail foot traffic is beginning to come back. December traffic was well above last year and over 80 percent of the levels we enjoyed two years ago. E-commerce levels peaked in April 2020, at the height of mandatory store closures and stay-at-home orders, hitting 19 percent of all retail sales. Since then e-commerce levels have dropped back to 15 percent but are still above pre-pandemic levels.
“Our customers want a more integrated seamless shopping experiences, digital and physical, personalized and local, more convenient ways and more immersive, experiential, more social, human ways to shop.
“The retail industry is entering 2022 in the strongest position we have enjoyed in many, many years. We are also facing incredible challenges. Tight labor market, almost a million retail job openings. Worldwide supply chain challenges. Disruptions that continue to complicate retailing.”
“COVID-19 vaccination rates have stalled among young Americans,” said George. “Only about 63 percent of Americans are fully vaccinated against the virus. That level is tragically too low. High vaccination rates are critical to sustain retail, to sustain economic recovery.” While the NRF has been encouraging vaccinations, it opposed the federal mandate for employer-mandated vaccinations, which was blocked by the Supreme Court.
Outlining 2022 lobbying priorities for the NRF, George cited efforts to lower tariffs, encouraging workers to take retail jobs, assisting small businesses struggling in the pandemic, promoting a national standard for privacy protection, furthering sustainable business practices, and helping combat “a growing crisis” of organized retail crime.
“The worst days are behind us but it’s still hard to predict what the virus will have in store for us in 2022, yet we enter the year with great confidence,” said George. “You have all shown tremendous agility over the past two years proven by your ability to deliver safe, convenient and inspiring shopping in face of unprecedented challenges.”
Being agile “is so important now but is going to be more important in the future,” said John Furner, president and CEO of Walmart U.S., and the incoming chairman of the NRF, during his conversation with Shay on the NRF stage.
Asked for his outlook on 2023, Furner said, “It really starts with what we see as a strong consumer market. We have really high demand in an economy that grew between 0 and 3 percent for decades and in the last couple of years, we’ve seen that really accelerate. With higher demand and a higher supply of money in the world, we have seen demand levels that have caused supply chain shortages, out of stocks and inflation.
“The two things we really hear from our customers thinking about most are their health and safety, which completely makes sense given the pandemic and this variant,” said Furner. “The second we hear is about inflation and rising prices. And our position with everyday low prices at Walmart is going to be so important for so many customers who need to be able to find their basics, like laundry detergent, paper goods, products in the meat department, groceries, for values that are affordable.
“The supply chain pressures will persist for some amount of time. We will deal with it. We will figure out how to be creative,” said Furner. “For the entire industry, you’ve got to look for ways to be innovative and try to remove costs from the supply chain while the costs are rising, to ensure that our customers can find value and be able to afford and take care of their families and do the things they need to do every day.”