Consumption may falter for the first time since the pandemic, but there are still reasons to prepare for high consumer demand.
Key Takeaways
- West Coast dockworkers reached an agreement to avoid a labor stoppage
- Up 14.8% in 2023—the S&P 500
- A UPS strike could wreak peak season havoc
- Peak season forecasts remain unclear with both strong and weak economic signals
Peak season is almost here. And after consecutive turbulent quarters, retailers and brands have reason to be both cautious and optimistic.
The stock market rebounded following stronger-than-expected earnings. The S&P 500 is up 14.8% this year—a 23% gain from its October 2022 low—meeting some definitions of a new bull market.
Also adding to the rosier-than-expected outlook, the International Longshore and Warehouse Union and the Pacific Maritime Association announced a tentative agreement. The contract covers 22,000 workers at 29 ports from San Diego to Seattle, some of the world’s busiest. The agreement comes nearly a year after disputes disrupted import flows.
“As we enter the all-important peak shipping season for holiday merchandise, retailers need a seamless flow of containers through the ports and to their distribution centers,” Matthew Shay, president of the National Retail Federation said.
Peak season challenges #
Despite these positive developments, retailers and brands face economic headwinds and potential supply chain bottlenecks.
UPS and the Teamsters #
Over 340,000 UPS workers, represented by the Teamsters Union, threaten to strike. It would be the largest US single-employer stoppage. The strike could occur during back-to-school season and peak. It would have drastic ramifications for parcel networks. UPS handles 18.7M domestic packages daily.
Consumer pullback #
The economy has slowed. Many consumers cut discretionary electronics and clothing spend. And retailers weigh whether they need to bring in as much back-to-school and holiday inventory. Some are still stuck with an inventory glut from the pandemic.
Import volume declines #
Analysts forecast second-half US containerized import volumes dwindling further. Retailers created an inventory bullwhip effect with considerable leftover stock. Couple that with slower consumer spending, and it’s likely that import volumes dry up further.
What to expect this peak season #
Much like last year, retailers and brands are simultaneously cautious and optimistic about the upcoming peak season.
Causes for concern #
Consumer discretionary spending remains low despite the stock market's positive performance. Shoppers focus on buying necessities—groceries, beauty products, household items— and wait for promotions.
Federal student loan payments resume in September—another risk. Borrowers not making payments during the pandemic boosted retail sales.
The loan changes won’t “make or break if we go into a recession or not,” said Brad Thomas, a retail analyst at KeyBanc Capital Markets. “It’s enough to potentially give us what could be an ugly and disappointing holiday season relative to expectations.”
Reasons to be optimistic #
Despite headwinds, shippers also predict a strong peak season. Last year, analysts called for tempered holiday shopping. Despite economic concerns, consumers set Black Friday records.
eCommerce sales topped a record-breaking $9.12B in 2022—2.3% higher than 2021. In-store shopping also increased. According to the National Retail Federation, 196.7M consumers shopped in stores.
Adding to the upside, the US labor market is resilient. The Labor Department reported the US economy added 253,000 jobs in May, exceeding economist estimates. US wages were up 4.4% year-over-year, and the unemployment rate remains historically low at just 3.4%. These forces will add consumer spending power and may prove strong enough to boost peak season sales.
Shoppers still spend despite inflation, according to recent earnings reports from Ulta, Macy’s, Ralph Lauren and Nordstrom. Based on estimates from Deloitte, peak season spending grew 6% reaching $34.4B last year.
Prepare for peak with supply chain flexibility #
Regardless of how peak season materializes, leading brands prepare for seasonal challenges by implementing supply chain flexibility.