Retail

Retail winners and losers amid rising inflation

The consumer price index hit 8.6% in May, the highest level since 1981.
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Francis Scialabba

· 3 min read

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Inflation is setting records, and there’s little indication it’s going to slow down any time soon. The consumer price index hit a 40-year high in May with an 8.6% YoY increase. Some of the largest increases in prices were in food and energy, but the core CPI, which excludes those categories, still rose 6% YoY, slightly higher than estimated.

This volatile environment is ripe for winners and losers, said Brian Mandelbaum, CEO of Klover, a fintech app with 3+ million users. From May 2021 to May 2022, its data showed an average 13.1% increase in out-of-pocket spending per purchase.

  • Klover users are buying 12% fewer items for the same amount of money than they did a year ago, Mandelbaum told Retail Brew.

The winners…include retailers with bargains. Mandelbaum pointed to Costco, Dollar General, Five Below, HEB, and Aldi as companies outpacing spending right now on an index basis, per Klover data.

  • He added that beauty—noting Ulta and Sephora—has also been relatively resilient. The average purchase per visit at Ulta is up 4% YoY, according to Klover data.

David Ritter, partner and managing director of Alvarez & Marsal’s consumer and retail group, agreed that value is showing its resilience. “Those formats that try to provide the best value to the customer, even in non-inflationary environments, are more prone to be able to deal with this and are set up to cut costs in a way that preserves their business model but also [makes] them more economically viable,” he told us.

The losers…are mostly the retailers stuck in the middle, some with a surplus of inventory (cough, Target, cough), both Ritter and Mandelbaum said.

  • Ritter said cost-cutting isn’t in the DNA of middle-of-the-road retailers, so they will “generally struggle in an inflationary period.”

“They’ve overbought, and now they have to figure out ways to actually liquidate that inventory, which ends up hurting them from a top-line perspective going forward,” Mandelbaum said.

Looking ahead…Retailers will have to reevaluate the pricing of their full assortment because, while they can often pass on small inflationary moves onto the consumer, “we’re at the point now where these are not small inflationary moves,” Ritter noted.

“It’s a zero-sum game,” he said, though he expects more cost-cutting beyond what you’d typically expect—from operations to labor to more “indirect costs.”

  • “Think everything from cleaning to shoveling snow in the parking lot.”—KM
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