NRF’s Shay assesses holiday import and inventory trends heading into the holiday season

The story of the economy since the onset of the pandemic has been the resilience of consumers and how consumption has powered the economy. That was the word from Matthew Shay, president and CEO of the Washington, D.C.-based National Retail Federation (NRF) on a media conference call hosted by the Port of Los Angeles this week.

Shay explained that the pandemic drove unprecedented demand for supply chain and logistics operators, adding that some of those demand factors are still intact today, reflecting consumer spending behavior.

“Retail sales continue to find a way to [head] up, and consumers are very resilient and continue to spend,” he said. “The way in which they are spending and the way in which they are paying close attention to how far every dollar goes is changing and evolving. And we saw a dramatic shift 18 months ago, when inflation really started to hit on the goods side. We saw a shift over to lots of spending back on the services and the experience side, for travel hospitality, lodging, dining, all those things. We haven't seen a complete transition back to sort of the pre-pandemic balance between goods and services. People are still spending on goods, but we have seen moderation there.”

The moderation, he said, is coming in the form of consumers not spending as much and are not spending in the same ways. Which is something the NRF is paying very close attention to, as the holiday season arrives.

To that point, he observed how the NRF expects households to spend, on average, $875 per household on holiday spending this year, with $620 going towards goods, and the remaining $255 on consumable items, with these figures above the 2022 holiday season estimate.

“Consumers are resilient,” he said. “They're still powering the economy or catching their breath behaving in a more deliberate way. And we're seeing spending moderate.”

Cargo flows: As for the intersection of consumer spending and import levels, Shay cited the NRF’s Port Tracker Report, which it co-publishes with maritime consultancy Hackett Associates, saying it is likely that U.S.-bound retail container imports have probably hit expected peak levels already this year, coupled with the expectation that there will be gradual slowing over the remainder of the year.

“I expect volumes will still be strong, but maybe not quite as high as we were predicted six or eight weeks ago,” he said. “One of the behavioral changes on the retail side is that we know that consumers are shopping earlier than ever for the holidays. They continue to pull their shopping back into the spring into the fall into the summer. So, we're seeing lots of people begin earlier than ever and so retailers have responded by bringing cargo in earlier…and retailers responded by bringing cargo in earlier and stocking up.”

What’s more, he made it clear that memories linger regarding the dilemma caused in recent years by stock-outs and product shortages. And the combination of consumers changing their behavior and retailers not wanting to repeat a season in which they did not maybe have all of the goods they wanted in place when they needed them has pulled a lot of that activity forward.

“I think we have seen most of that cargo come in already, and we will see a tapering,” said Shay. “And we know that consumers are changing the mix. They are sort of spending less, moderating on the goods side, and that is having implications for how much cargo comes in and when it comes in as well.”

Inventory outlook: As the Federal Reserve reports that the inventory-to-sales ratio remains elevated, POLA Executive Director Gene Seroka asked Shay on the call that that means in regards to the overall mix of cargo, as well as what actions retail CEOs will take to flush out older product and get newer, or trending, items into the country.

Shay explained that in the spring of 2022 there started to be increased attention paid to inventory levels, part of which was what he described as a hangover from late 2021, when goods that were needed did not arrive on time, leading to retail shippers missing the market opportunity, due to a mismatch on the timing side when there was demand versus when the goods arrived.

“There were some retailers that spoke fairly publicly about their position relative to their inventory ratios in the first and second quarters of 2022,” he said. “I think that's largely played itself out now. That's not something that we're hearing from our members. I was with a group of CEOs of major retail companies just in the last week and, this was not one of the things we talked about and was not high on anyone’s list. Our assessment is that inventory-to-sales ratios are really back to pre-pandemic levels, at about 1.0-to-1.3, so we are very close to where would have been before the pandemic, as opposed to a slightly elevated 1.5-to-1.6. I think people are pretty comfortable about that and have the inventory mix right.”

For the 2023 holiday season, Shay turned back to the Port Tracker report, stating that he maintains most of the inventory necessary for the holiday season has already arrived to domestic markets, in warehouses and distribution centers and will continue to come in but at a more moderate level, as the holiday season gets arrives.