How demand shifts caused by inflation will affect global retail
In this post in the Ripple series, we move from considering retail and supplying industries to inflation effects across the world.
The effects of a missed anticipation and prediction of consumer spend by Red Square can cascade across the landscape of competitors. The effects are a result of larger monetary, fiscal, and micro-economic pressures changing consumer behavior. The change in consumer behavior rapidly transmits to component and raw materials suppliers at the far ends of supply and production.
The effects across the marketspace of retail spend have direct changes to levels of employment, employee total wages, and predictably retail seller financial performance. The total retail spend captured across Red Square and its competitors approach USD$2T and millions of employees. As an easy to ‘view’ subject of spending the controversies over TVs have raged for decades (digital TV, shift to HDTV, content delivery, etc). The wider consumer spending changes, besides the merchandise large TV category, will be seen as a leading indicator of consumer confidence and capacity to spend.
The investor impacts of changes to consumer spend will be felt directly in investment indexes and earnings. In May/June 2022 changes in Target, Walmart, and other retailers materially impacted overall stock index performance. Investors and investment managers seeking earnings quality will seek to quantify each impact of ripples up-the-supply-chain and across the consumer behavior spend. Linked to inflationary increases this will increase demands for short-term investment returns and depress investment in what will again be seen as a cyclical industry.
“Winners”, “Losers”, and “Invaders” are difficult to identify at this stage of cyclic economic change. These things are clear:
1) Enterprises will see a premium to take action to protect earnings per share, cash flow, and balance sheet strengths
2) Initiatives to reduce costs and aligning production with orders will be moved to immediate action
3) Cyclic drops in demand will reduce business cases to rapidly increase plant and capacity investments
4) The Chump-to-Champ-to-Chump cycle will see survivors prospering from prior investment in agility, resilience, and sustainability for the enterprise.
5) Crashes from failures to prepare and navigate unforeseen conditions will reduce common household brands.
And the cyclic nature of enterprises will continue.
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