Mark It Down: January Promises Big, Big Discounts
(Bloomberg Opinion) -- This Christmas shopping season is not such a holly-jolly time to be a retailer. Winter goods have arrived late. Temporary employees are hard to find. And if those challenges weren’t enough, a new Covid-19 variant is threatening to put a fresh pandemic damper on the holidays.
Although retailers have benefited from boisterous consumer spending in recent months, the possibility remains that unabated inflation and falling rates of saving among Americans will soon slow demand. Supply-chain delays could also weaken the pricing power that stores have enjoyed. Any inventory still on shelves late in the shopping season will need to be marked down.
Meanwhile, hiring continues to be a challenge, according to the National Retail Federation, which said retailers had planned to add nearly 650,000 people for the holiday season. Long lines and messy shelves recently seen at stores such as Gap, Bath & Body Works and Old Navy at northern New Jersey’s busy malls are one sign of the unmet need. Retailers say their staffing troubles are a main reason that they oppose vaccine mandates. But omicron is poised to inflict new headaches of its own. Already, in the wake of Thanksgiving gatherings, Covid-19 infections have multiplied, and many shoppers remain unmasked in close quarters.
The NRF is among trade groups that sued to stop the Biden administration’s vaccination-or-test requirement for businesses with 100 or more employees. The continued threat of Covid makes that position frustrating. Corporations — especially crowded shopping venues — can and should endeavor to keep workers and customers safe. But retailers worry that many of the people who resist getting shots may be their customers or potential employees.
Such fears are misplaced. An analysis by Goldman Sachs Group Inc. found that health-risk concerns are partly behind the weak recovery in labor-force participation. And while mandates may at first lead small numbers of workers to quit, in the long run they lift employment rates. Where vaccines have been required, mass departures haven’t happened. Mandates at Tyson Foods Inc. and United Airlines Holdings Inc. were incredibly successful. Even some NRF member companies, including Walmart, have imposed vaccine requirements for office staff — just not frontline workers at stores.
Worker shortages, in turn, contribute to supply-chain congestion. And late shipments could now leave stores with too much fleece, flannel and other winter goods that lose their appeal once the holidays are over. The week before Black Friday, Victoria’s Secret & Co. said a quarter of its pajama inventory had been delayed.
Big-box chains have tried to prevent some of the late-season buildup by making last-minute changes to their orders with manufacturers. But smaller retailers couldn’t do that as easily. “They probably also don’t have a lot of space to just store that inventory for the following season,” Jack Kleinhenz, the NRF’s chief economist, told me.
Last earnings season, corporate America broadly overcame inflation pressures by raising prices, and that pleased shareholders who had been bracing for poor results. But any deep discounting retailers are forced to do in the coming weeks may eat into profits, giving investors an unhappy first-quarter surprise.
Omicron makes everything that much harder to predict. According to Kleinhenz, the outlook for 2022 looks to be “solid.” Still, he said, “this new virus variant is just as serious as any that we’ve seen, but we don’t have enough data yet to know how it will impact consumers and households.” Any effect would certainly be blunted by higher vaccination rates in the U.S.
In the meantime, as retailers grapple with tardy shipments, there’s a potential silver lining for patient shoppers: In a few weeks, winter boots and sweaters might be a whole lot cheaper.
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Tara Lachapelle is a Bloomberg Opinion columnist covering the business of entertainment and telecommunications, as well as broader deals. She previously wrote an M&A column for Bloomberg News.
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