Fashion might just have dodged a bullet when railways and their unions reached a last-minute deal to avoid a potentially crippling strike.
But what if the deal falls through and the rails shut down? Or what about the next shock to the system? Or if consumers finally capitulate to harsh economic reality and freeze up, as some expect?
The global supply chain, consumers and the economy are all pushed to their breaking point right now and — after more than two years of one crisis or another — there’s little room in the current retail system to continue to adjust.
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The potential rail shutdown was just the most immediate risk.
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And the threat still lingers.
While Steve Lamar, chief executive officer of the American Apparel & Footwear Association, lauded the administration of President Joseph Biden and Congress for helping break the impasse, he made clear just what the stakes are in the matter.
“If a deal is not completed in full, the 25 percent of apparel and footwear that typically touches the rail lines would immediately get stuck and threaten the busy fall shopping season,” Lamar said. “Trucking demand would skyrocket amid a very real truck driver and chassis shortage and delivery of all additional consumer products would suffer from the ripple effects. Our industry, consumers and the economy — at the cost of an estimated $2 billion per day — would suffer.”
The saving grace for retail is that the consumer has proven willing to spend in spite of inflation, the threat of recession, the pandemic, the war in Ukraine and the rest of it.
The monthly Census Bureau’s monthly retail sales report on Thursday showed that apparel and accessories specialty stores saw August sales rise 3.5 percent from a year ago while department stores inched up 0.7 percent.
Overall retail and food service sales rose 9.1 percent for the month.
The kicker is that inflation was running at a rate of 8.3 percent for the month, according to the Consumer Price Index.
Shoppers are spending a lot more, but they’re getting just about the same as they were, adjusted for price increases.
AlixPartners recently forecast that holiday sales would rise 4 to 7 percent in the U.S., failing to keep up with the current inflation rate and resulting a decrease in “real” sales.
Sonia Lapinsky, a managing director in AlixPartners’ retail practice, said the hits have been coming one “after the next, after the next, after the next” in retail.
“We’ve been getting by,” Lapinsky said. “Consumers have been trading down and they’ve been buying different products, but it’s not getting better and they’re getting more nervous and there’s only so much retailers can drive with the sales.
“Eventually, consumers are just going to stop,” she said. “They’re going to step spending, they’re going to be afraid about where the economy is going to go. Retailers are going to have to adjust. The consumer’s now in power.”
Lapinsky said the knee-jerk reaction among retailers would be to cut costs, but that they are also going to have to get serious — and smart — about not just selling online, but getting consumers to click profitably.
“They’ve got to get way stronger and get this digital first mentality,” she said.
While how to sell online profitably is a problem retailers have been trying to solve for more than 20 years, Lapinsky said the tools and expertise now exist to make real progress in the area.
“We’ve got to put the smart, flexible, dynamic dashboard and solutions on top and retailers aren’t always good at being agile and smart and fast, but that’s what we have to do,” she said.
If necessity is really the mother of invention — or reinvention — this might well be the time for the industry to take a big step forward.