The good times of the consumer economy are coming to an end

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Over the past year, nearly all retail and consumer sectors have been winners.

Hearthstone trends hadn’t faded completely, so people were still spending on baking supplies and DIY tools. At the same time, cities and towns were reopening, and shoppers were buying clothes and beauty products (teeth whiteners, anyone?) with a vengeance.

Now the good times for retail are coming to an end. But it’s not entirely clear whether this is due to changing consumer habits – that is, the “great rotation” from pandemic habits to those associated with open economies – or the surge. of inflation.

This makes it very difficult for retailers, investors and policymakers to know what is happening with consumers and household balance sheets.

Certain categories are clearly victims of the pivot of pandemic trends. Peloton Interactive Inc., for example, did a backspin as its runners returned to the gym. Consumers have also moved away from shopping online as restrictions on physical stores ease, which has dampened digital sales on both sides of the Atlantic.

Others are the clear winners of reopening. Estee Lauder Cos Inc. has enjoyed a worldwide makeup “renaissance” even as shutdowns in Shanghai disrupted shipments and reduced its forecast.

But some sectors are more difficult to decipher.

Take streaming. Netflix Inc. lost 200,000 subscribers in the first three months of this year, the first time it had lost users since 2011, and forecast it would drop another 2 million customers in the second quarter. You could blame more parties for a slowdown in binge-watching. But maybe rising rent, food and gas prices are to blame – a Netflix subscription might be one of the easiest things to cut from the budget, especially if takeout more and more expensive ones are also being discontinued.

Household items present another conundrum. Consumers splashed their surroundings as they spent much of their days indoors. But how often do you need a kitchen refresh? It makes sense that the sector would see weaker sales after the pandemic.

However, homewares are also big and expensive items, which are the first things consumers cut back on when budgets are tight. These items have also become even more expensive, as they tend to be bulky and take up more room in shipping containers.

Last week, Walmart Inc. said Americans were spending more money on food, taking resources away from areas like higher-margin home furnishings.

Target Corp. reported the same thing: it experienced a sudden downturn in early March as Americans grappled with rising food and fuel prices. This affected major purchases such as televisions, kitchen appliances and outdoor furniture. Instead, the retailer said consumers are focusing more on small decorative touches, such as candles and pictures. While this may reflect home renovation fatigue, it’s also worth noting that these items are much cheaper.

When it comes to clothing, the interplay between consumer turnover and withdrawal is even more complex.

While retailers have seen a drop in demand for clothing, this has been driven by reduced interest in casual wear. Shoppers are always ready to splurge on new shoes or dresses for special occasions. Department store Kohls Corp., which has made athleisure and casual style a cornerstone of its strategy, is working to add more fashionable pieces to its inventory. A travel revival, meanwhile, is driving demand for luggage and bikinis.

There are signs that changing consumer habits are more linked to inflation than to the Covid cycle. For example, McDonald’s Corp. said late last month that he was seeing smaller orders and swapping to cheaper items. Kohl’s said it’s seeing some of its customers putting less in their shopping carts.

Overall, more and more shoppers are choosing less expensive private labels over well-known brands. This is a classic strategy for dealing with higher prices. Meanwhile, falling consumer confidence indicates that shifting demand patterns may be more a matter of retrenchment than a reallocation of resources to areas such as travel and entertainment.

Either way, retailers need to figure out what’s going on – and fast.

They will be ordering soon for the high season of winter holiday spending. A miscalculation could leave them short of in-demand items or with too much stock of things buyers no longer want. Walmart and Target are already struggling with crowded inventory after stocking up on merchandise during shipping disruptions last year.

Retailers and consumer goods companies also need to consider that supply chain bottlenecks have not gone away. Target said supply remained “uneven.” Some companies, including Nike Inc., still have a high proportion of goods in transit. Others may be forced to place their holiday orders earlier than usual, given the continued disruption of lockdowns in China. This increases the risk of more goods arriving as consumers limit their spending.

How the groups navigate over the next six months will affect the wider economy.

A chilling consumer and bloated inventory will likely result in a bumper Black Friday – deep discounts could offset some of the upward pressure on food and fuel prices. Too much caution, however, would lead to the same kind of supply shortages we’ve seen over the past two holiday seasons. Remember that part of the shortage at the end of 2020 was due to the fact that chain stores had placed very conservative orders six months earlier, in the midst of the first wave of the pandemic.

The sentiment from CEOs this earnings season has been that they “feel good” about the future. Given all the uncertainties they face, they probably shouldn’t.

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Opinion columnist covering consumer goods and the retail industry. Previously, she was a reporter for the Financial Times.

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