Inflation Metrics Are Going In The Right Direction, Recession Could Be Just A Revision To A Normal Growth Baseline

Economic strength indices are holding relatively strong YoY, with the exception of of consumer confidence which has seen it’s most significant drop since the beginning of the pandemic.   Everyone is talking about the balance between controlling inflation and managing recession.  Goldman Sachs economists put the risk of a US recession in the next year at 30% and Bloomberg rates it at 38% and consumers are feeling it already. That said, I am of the opinion that this is part of the normal return to baselines that we are seeing everywhere.   Yes the stock market is down 20% from highs, but it is flat on a 12 month basis up 29% on a 1-year and 2-year basis, up on a 2 year basis and an average of 58% on a 5 year basis.  It’s a return to the baseline.   

Yes, we are talking about a recession, and most people project it will be a mild one, but what is a 0.5-1% drop in GDP, when the average growth over the last 18 months has been ~5%, double pre-pandemic averages).  A recession would have to be 3-5% just to return to the baseline, and the projections are much lower. 

The Fed seems committed to stopping inflation and the rate hikes seem to be slowing demand as designed as rates approach the same levels as pre-pandemic or less than half of rates before the 2008 financial crisis- aka a return to a baseline.  And while we are hearing of layoffs and slowed hiring, there are still 3 times more job openings as number of people looking for jobs.  Unemployment is still at historic lows. 

Oil Falls Below $100 Per Barrel, But Europe Energy Prices Are Still Spiking

This week we began to see key commodity prices start falling.  Oil dropped below $100 per barrel (although the Biden administration has reiterated that consumer gas prices haven’t reflected the magnitude of the drop yet).  June registered the most consistent and significant drop in gas prices in several years after multiple upward price shocks in the Spring based on the Ukraine war and slow OPEC response.  But US government measures have been working and we are seeing a steady drop in gas prices throughout the US and in Canada.

But with the Ukraine war continuing on, the energy markets are volatile.   With winter approaching, there is considerable concern about the fear of natural gas not being available to countries like Germany.  In fact, already the largest German landlord is restricting heat at night.   With a lack of backup options like nuclear, European states are seeing energy prices spike.  Costs of energy in France have skyrocketed nearly 8x since 2020.

Key Commodity And Logistics Costs Are Falling Quickly

Container import costs have dropped from $20,000 to $8,000 and import delays have gone down 35% in the last couple weeks. Warehouse costs have returned to Jan 2019 levels and inventory costs approaching norms as well. Copper costs have dropped 12% in July and 25% from recent highs. Global food supply prices dropped 2.3% in June. Wheat prices have fallen to their lowest levels since February, “Supply may not be as impaired as we think because other areas will compensate for any losses from Ukraine, and it is happening across the board,” said Marc Ostwald, global strategist at ADM Investor Services in London. Wheat and soybean futures have fallen about 15% this month, while corn has dropped 13% and palm oil 30%.

Home prices also slightly softened in April and Zillow predicts the YoY growth to drop from just over 20% to 9.7% in the next 12 months while Moody’s predicts it will drop to 0%. Car prices have also begin falling as well. To reduce consumer goods inflation, Biden is negotiating with China to reduce Trump-era tariffs that arguably haven’t been very effective. According to Bloomberg, “While China’s economy has been undermined by Covid-related shutdowns this year, exports to the US in the first five months of 2022 still grew 15.1% from a year earlier, after jumping almost 28% in 2021 and 8% in 2020.
So while we are still trending towards baselines and the oceans haven’t shifted seismically, the surface waters are still choppy and retailers are forced to plan how to traverse them.   That means passing along costs to vendors, like Walmart charging new fuel surcharges of logistics and receiving.  

How Retailers Are Taking Advantage Of Current Economic Conditions

Grocer’s are taking advantage of price sensitivity by promoting their loyalty apps and mobile couponing.  Grocery app usage has reached new highs, rising 13% YoY with Kroger taking the top spot and Albertson’s quickly catching up.    Couponing has been a major driver of usage, especially given pricing pressures.   Grocery delivery apps were up 40% YoY.  

Amazon Prime Day is coming next week and the industry is abuzz, as it will be a bellwether for consumer demand.  It is expected that Amazon CPG share will hit 20%.  For comparison, Amazon’s CPG share was 4.7% in the month before Prime Day in 2021, and 19.1% during Prime Day in 2021.  Consumers have fed back that they will use Prime Day to jumpstart back-to-school sales, another important bellweather going into holiday planning.  Interestingly, Walmart is not offering a competitive promotion to Prime Day, given there are already a lot of inventory clearing promotions.  

To help boost retail sales for back-to-school, 18 states are offering tax holidays.  Back-To-School sales are expected increase +5.5%, which is substantive, but lower than last year’s astronomical increase of +13.1%, especially if you account for inflation. 

But next week will provide a lot of insight into consumer demand.

What Amazon’s New In-Store Analytics Tells Us About The Future Of In-Store Data And Shopping Behavior

According to an Amazon Blog post, they have launched a new analytics platform for brands to better understand how shoppers interact with products in AmazonGo enabled stores.   This is exactly the vision of Perch’s Shopper Marketing Cloud and Analytics Platform.  “With Store Analytics, brands will have access to details on how their products are discovered, considered, and purchased in applicable stores to help them inform decisions related to selection, promotions, and ad campaigns. Through the secure Store Analytics dashboard, brands can access aggregated and anonymized data about how their products rank and perform. Additionally, advertisers running in-store campaigns such as digital signage will see associated performance metrics in their ad campaign reports.

But what it tells us about the future of in-store analytics and how it can change the way we think about influencing the customer journey is profound - and we know this here at Raydiant because this is exactly what we have been working on in our at-the-shelf analytics with Shopper Marketing Cloud.

The Latest Retail Technology News

Polish convenience store chain Abka Group has opened its 50th checkout-free store.  Tomasz Blicharski, Managing Director at Żabka Future, said:  “We focus on its flexibility – we are able to open more autonomous outlets both in highly trafficked locations, such as strict city centres or underground stations, as well as in large-format stores. We are also one of the first in the world to develop a concept that allows you to enter the store using a payment card.”

Starship Technologies has halted its autonomous delivery fleet with Save Mart in Modesta and Pleasanton California. Starship didn’t comment on the reversal, but did comment in June about the general market: “The global economy and investment market have taken dramatic downward shifts recently and, like many other startup and tech companies, Starship has been impacted and will be making changes …These changes mean that we are closing a small number of service locations in the U.S. and Germany over the next two months.”   Is autonomous delivery too early and too costly for trial experimentation?

Southeastern Grocers has expanded 2,600 point-of-sale digital displays to its digital out-of-home network.  In-store retail media networks are on fire, with a multi-billion dollar shift to monetize in-store shoppers and increase profitability, one of our 2022 retail predictions.  We are hosting a webinar on the rise of retail media networks on Tuesday, which you can access after the fact as well.  

Walmart has acquired Memomi, a magic mirror and virtual try-on technology platform that has specialized in trying on eye-wear.   Since 2019, they have enabled measurements across 2,800 Walmart’s and 550 Sam’s Clubs.   “We’re excited to welcome the Memomi team to Walmart and add their capabilities to our leading virtual reality technology that is transforming the retail experience for our customers and members,” said Cheryl Ainoa, senior vice president, new businesses and emerging tech, Walmart Global Tech, in the release.

Pinterest has launched a suite of new tools for social shopping and eCommerce.   It increased its product tagging capabilities, launched video support from product catalogs, a shop tab on business profiles and a new API for managing product catalog and metadata.   It’s a big step forward in social commerce and integration into eCommerce systems like Shopify, Magento and Woo Commerce.

Stories To Share At The Retail Water Cooler

Amazon has taken a 2-3% stake in Grubhub and is offering GrubHub+ free as part of Amazon Prime subscriptions. If the partnership goes well, it could grow to a 13% stake. “The agreement is expected to expand membership to Grubhub+, while having a neutral impact on Grubhub’s 2022 earnings and cash flow, and be earnings and cash flow accretive for Grubhub from 2023 onwards,” says the release, but it does have the potential of cannibalizing subscriptions that would have been paid to GrubHub. Amazon failed in its initial restaurant delivery platform attempt. A partnership gives Amazon a new entry into local delivery that could be expanded to other rapid delivery services over time. And it’s good news for GrubHub which has been losing share to DoorDash and UberEats and has struggled with an app UI and ad model that has struggled to drive loyalty.

Colorado is charging a new $0.27 retail delivery fee to all deliveries by motor vehicles, including Amazon, food delivery, florist deliveries and more. Interestingly, it’s small business owners that are voicing their discontent. One SMB said it’s costing her more than $100,000 to implement new software and systems to manage and charge for the fees.

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