![]() ![]() ![]() In the early months of 2022, amid record inflation, US consumers continued to open their wallets. While inflation hasn’t had a meaningful impact on nominal consumer spending yet, we are beginning to see early signs of a potential pull-back. placing further downward pressure on retailer profitability. In addition, e-commerce now represents nearly 13 percent of all retail sales, 2 US Census Bureau, NBER, McKinsey analysis. Retailers must contend not just with the rising cost of merchandise, but also with cost increases on everything from manufacturing inputs to freight and fuel to wages. Looking ahead, the industry is likely to face a more challenging growth environment even as it deals with increased expenses. Retailers are getting squeezedĪs the economy has opened back up in recent months, we’ve seen both top and bottom lines challenged with slowing sales growth for some and compressing margins-a challenging combination for retailers. ![]() We’ve identified six key areas where industry leaders can focus their efforts to transform this period of stress into an opportunity for the future. Retailers across the sector must reckon with the new realities of record inflation and develop solutions to sustain their businesses, retain customers, and ensure long-term growth. Central banks worldwide are raising interest rates to temper demand and limit future inflation, but those efforts will take time to yield results. Planners have come to expect an approximately 2 percent inflation rate, but it has become increasingly apparent that inflation could remain well above that through next year and possibly beyond. Commodity prices jumped again when Russia invaded Ukraine, exacerbating cost increases, both direct and indirect, for retailers and sending inflation still higher. Bureau of Labor Statistics, “Consumer prices up 8.5 percent for year ended March 2022,” April 18, 2022. In the US, inflation hit nearly 8.5 percent in March 2022, its highest level in 40 years. But the strong demand for goods soon overwhelmed supply chains, and supply-demand imbalances combined with commodity-driven cost pressures to drive prices higher. Last year, as more and more Americans were vaccinated against COVID-19, retailers enjoyed a big boost in sales. It wasn’t long before investors responded, and some of America’s largest retailers saw the biggest declines in their stock prices since the market crash of 1987. Inflation landed like a thud in the retail sector in May as industry leaders reported on the impact that higher costs were having on their operations. ![]()
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