Unity Marketing's Danzinger Predicts Retail Faces Challenges in Second Half

New York, NY, August 22, 2023-RapidRatings executive chairman James Gellert and Unity Marketing president-founder Pamela Danziger joined Yahoo Finance Live to discuss the state of the retail industry. This is an excerpt of their discussion.

“JAMES GELLERT: When you look at that outcome there, when you look at the bigger companies versus the value plays, what sort of environment should we be looking at timeline-wise?

“PAMELA DANZIGER: Well, that's a question that nobody has an answer for, but I think we're seeing increasingly 2024 is going to be tough. And again, if the retailer-- if consumers pull back as I expect them to-- and we talk about credit. The consumer credit cards are maxed out now. They owe over $1 trillion in credit card debt, so that's taking a bigger chunk of their discretionary spending out.

“So I think we're looking at an environment next year that whether or not we have a recession, I think we're going to be in a place of stagflation, like remember back from the 70s, with smaller retailers more at risk from declining consumer spending.

“And James, when you look at how much the consumer has changed, obviously, a lot of these companies are trying to get a handle on what the consumer wants. We saw the backlog when it came with inventory. What do you think is going to be the next catalyst for retailers as you give an outlook?

“JAMES GELLERT: The story for the last couple of years has been supply chain. The story for the next couple of years will continue to be supply chain. Now, the companies that have the greatest access to supply ahead and are able to plan for consumer spending changes over the coming quarters are really the ones that are going to be best positioned. The ones that have less resilient supply chains, don't have as much insight into the goods that they're buying or have suffered disruptions of one kind or another, they're the ones that are going to have a trickier time managing consumer preferences.

“Bed Bath & Beyond again is a great example of a company that really lost the confidence of its suppliers as it was facing a lot of its problems. And then of course, lost the confidence of its consumers as they would show up to stores and not see the goods on the shelves that they wanted.

“But as you go upstream in supply chains, you have smaller and smaller and more often private companies that are highly exposed to the rising interest rate environments and floating rate debt because they tend to be more bank borrowers than they are long-term bond issuers. So in their cases, the cost of capital have increased on top of the costs of labor and the costs of goods. So they're the ones who are more impinged, and they can't necessarily pass those costs through to their ultimate customers or the larger retailers that they're selling to. Those are the ones that are really going to be at the most risk over the next 24 months.

“So Pam, until we see interest rates start to come down and consumers feel more comfortable here, is anything else really going to change this situation? What is a new normal going to look like after being so comfortable with historically low interest rates for so long and now these bankruptcies continuing to pile up?

“PAMELA DANZIGER: Yeah, well, I think the word-and I remember the '70s, I think the word is going to be kind of a stagflation. People are going to put off buying discretionary products and making discretionary purchases. I mean, already, LVMH, Kering, Richemont, Prada, and Burberry already saw reduced spending in the US on luxury goods. And luxury is the most discretionary of purchases, and it's the one that is most easily put off. So I see them-- I see luxury is also threatened and in a bad place right now from what's happening with consumers.

“And James, that's interesting because we know that for at least most of the post-pandemic, luxury spending was pretty resilient here. As you look at perhaps some of these luxury retailers versus the value plays, who do you see then as perhaps coming out on top? As we are starting to see some of those cracks in the luxury spending market.”