In the second half, dreams come true in retail.
The extended back-to-school season and the long run-up to the holiday season are giving the industry a boost and can make up for the leaner months at the beginning of the year.
But hopes are dimmed this time as consumers struggle to navigate an economy that, apart from inflation finally cooling down, is working against them.
“Job growth is slowing. It’s not stopping, but it’s slowing,” said Scott Hoyt, senior director of economic research at Moody’s Analytics. “Most analysts, including us, believe markets may be overvalued. Housing prices are high, so the prospects for continued growth and prosperity are less than what we’ve seen recently.”
“Consumers are still feeling the impact of rate increases as they roll over their debt, and a few rate cuts (by the Federal Reserve) aren’t really going to change that. Rates are going to stay high, as consumers are used to.”
But at least in some ways, retailers are returning to a world they know well and probably want to forget.
“There is virtually no inflation in the price of goods overall, which is a bit like the pre-pandemic world,” Hoyt said. “Retailers have very little power in pricing. But other costs are rising, particularly labor costs, which is making life difficult for retailers.”
It is a dynamic that will likely continue to accompany the fashion industry for some time to come.
“I can’t see what gets us out of this,” he said. “To some extent, it’s a tough time for retail because we had a big increase in sales during the pandemic.”
Hoyt said the US election – Vice President Kamala Harris against former President Donald Trump – will not have a major impact on the economy in the second half of the year.
“The only real risk would be if the election was a tough fight and there was no clear winner and some kind of chaos broke out, which of course would be exactly when people were preparing for the holidays,” he said.
But even if the economic status quo is maintained, while Harris and Trump snipe at each other and fight over the country’s future, consumers’ attention span will be all the shorter.
Ike Boruchow, a Wells Fargo analyst who has covered the issue, told WWD in July that in election years, apparel retailers typically see a 150 to 200 basis point decline in sales between the first and second half of the year.
“Whatever we think now, the election this year means it will slow down by a percentage point or two,” Boruchow said. “People are not looking to spend money. They’re sitting on their couch. They pick a poison: They’re watching MSNBC or Fox and they’re totally engrossed in the election and the news cycle, and they’re not spending money.”
This uncertainty – from election distractions to the labor market to the trend toward reducing spending on goods in favor of services – is likely to weigh on retail and the stock market, which is also feeling shakier.
