What a ‘normal’ peak retail trade season could look like this year

The Covid hangover of inventories continues to be a big headache for retailers and the logistics companies which make money moving their products. As peak retail trade order season nears — July is the official start of the back-to-school and holiday order inventory build that runs through October — executives in the shipping industry are keeping a watchful eye on order activity.

Holiday orders are traditionally imported starting in August, with the manufacturing orders for these items made by retailers as much as six months in advance. During that timeframe this year, the U.S. consumer was facing record inflation and retail discretionary spending behavior was defined by a more discerning shopper. 

Inflation is coming down for, among other reasons, the Federal Reserve rate hikes cooling the economy, but there is concern within the logistics industry that interest rate policy kills too much demand. In the notes from the most recent Fed meeting released on Wednesday, there was division among central bank officials on whether a pause in hikes was merited at its decision in June, but there was a tilt in the minutes towards pausing.

 “If the Fed moves forward with another couple of rate hikes notwithstanding the progress we’re seeing with disinflation and cooling inflation, that could have a real negative impact as it relates on demand,” said James Gagne, SEKO Logistics CEO.

Still, category by category, demand levels vary. Gagne said cosmetics, for example, looks to be in much better shape than home improvement.

“I think it’s really hard to imagine in the near term given how much work Americans have done on what we call home improvement projects in the last 24 to 36 months and then potentially given where interest rates might still go, we see a resurgence in the home improvement category,” he said.

Home Depot’s recent quarterly released last week showed its first earnings miss since May 2020 and its biggest revenue miss since November 2002 with the company citing “broad-based pressure across the business,” as well as “further softening of demand relative to our expectations, and continued uncertainty regarding consumer demand.”

SEKO executives said they are seeing consumers trade down in the product, but as far as which categories will be the big winners this peak season, it’s too soon to know.

“The pig in the python has yet to go through when it relates to inventory” said Hans Hickler, president of Americas for SEKO Logistics.

Wall Street CEOs don’t expect inflation to dramatically decline, even if the Fed now has it under control. In recent comments, JP Morgan Chase CEO Jamie Dimon has said to expect Fed rate hikes to reach as high as 6% to 7% and Goldman Sachs CEO David Solomon said he expects inflation to be “stickier and more resilient.”

“If we foresee…