Delta Won't Send Us Back to Baking in Sweatpants
(Bloomberg Opinion) -- The great consumer rotation is finally upon us. Americans are folding up their sweatpants, putting away their mixing bowls and even reining in their enthusiasm for home improvements. Unless states introduce lockdowns again, it’s hard to see another headlong dive into those early pandemic purchases.
As for what we’ll buy instead, this will look different everywhere. Infection rates differ markedly between U.S. states, and efforts to bring people back to school and the office are rolling out at variable speeds. So rather than one big consumer recovery, we’ll see many local and fast-moving cycles. Add in rising inflation and supply chain snarl-ups, and that’s a lot for businesses to grapple with ahead of the year’s peak spending period.
Up until now, we’d been in the unusual situation where most retailers and consumer goods companies were winning: Stay-at-home spending habits that took hold last year hadn’t fully subsided, while purchases linked to reopening economies — think teeth whiteners and tuxedos — were surging too.
This is changing. Everywhere you look, there are signs that stay-at-home spending is losing steam. Even online sales growth is slowing down.
Meanwhile, people have flocked to buy clothing, and beauty sales have surged. Our wallets are now focused on getting out of the house.
Even with the recent surge of delta variant cases, retailers haven’t reported a huge change in consumer preferences. Urban Outfitters Inc. said this week that the impact from delta was “negligible,” with August trends at most divisions in line with those of the second quarter. Walmart Inc. and Target Corp. both said the back-to-school season also had a strong start.
And despite a recent slump in consumer confidence, there are indications that Americans are still preparing to spend during the “golden quarter” for consumer goods — i.e., holiday season. Walmart and Home Depot Inc. noted that Halloween merchandise — an indicator of forthcoming holiday demand — was already selling well. In fact, Kathryn McLay, chief executive officer of Walmart’s Sam’s Club division, said that even though the retailer stocked up with plenty of product, she wished they had bought more.
One reason delta doesn’t seem to be thwarting consumer spending too much is that stores and restaurants mostly remain open. Despite some restrictions, such as New York City requiring proof of vaccination for workers and customers at indoor restaurants, gyms and entertainment venues, people are still circulating. Americans just don’t want to go back to the dark days of pandemic baking and shed building.
That said, store chains and consumer goods groups aren’t off the hook. There will be other ways that delta and the risk of other variants reshapes our spending.
The appetite for travel is clearly being tested. About 60% of American travelers surveyed by Destination Analysts said the delta variant was making them less interested in travel right now, up from 54.3% two weeks ago. Almost a third of respondents said they’d even postponed an upcoming trip. In their minds, Florida, Texas and New York were the regions most associated with the current virus wave. That could affect sales in these areas if tourists stay away.
Back to Work — which may be the newest addition to the annual retail calendar — also remains TBD, with companies delaying plans to bring employees back to offices until later in the fall or even next year. A rush to stock up on workwear in November could clash with holiday shopping. (Forget gifting a fancy new gadget. Why not try some smart trousers?)
All the uncertainty presents a big challenge for businesses trying to meet shoppers’ needs. A local approach is paramount. Retailers and consumer goods groups need to make sure they have the right products in the right regions, whether that is face masks in states that are mandating them, or dressier apparel in regions closer to recovery. Monitoring the data on what’s selling (and what’s not) and getting the assortment right should help companies meet demand before conditions flip again.
This would be a big enough task at any time, but right now there are the added difficulties of labor shortages, including truck drivers, port congestion and Covid 19 disruptions to factories in Vietnam, a major producer of goods including footwear. In this environment, scale is a strength. Walmart said it was able to charter ships specifically for its own goods.
Flexibility is also key. Retailers should be ordering conservatively, with the option to buy more later, and concentrating on tried and tested best-sellers, whether that is a little black dress or branded food and drink. That might leave other products to niche online competitors, but at least shelves will be stocked with the most in-demand merchandise.
With the golden quarter fast approaching, there’s no time like the present to start navigating the varied and contrasting turns of the great consumer rotation.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.
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