The National Retail Federation recently announced that retail sales are exceeding earlier projections. Tax reform, paired with a number of positive economic inputs, has resulted in more jobs and more spending.
With this encouraging outlook, retailers have a lot of reasons to be excited about and anticipate the holidays — especially considering some retailers reap as much as 30% of their annual sales during the season.
The underlining fundamentals are all here. Barring any major shifts in consumer sentiment, the 2018 holiday season has a lot of potential and could mirror past record-breaking years. There is no better indication than the recent earnings releases from retailers like Walmart and Home Depot.
So could the holiday season be impacted by looming risks surrounding tariffs and other geopolitical issues? The answer is: likely not. Many retailers have already received their goods in the country, and they are well prepared for holiday shoppers in a mere three months.
There are several forces lurking in the background, though, and they could present risks to consumer markets after we ring in the new year. If these headwinds don’t shift course, then confidence could decline and have a negative effect on next year’s retail outlook.
So what’s going on? No one is exactly certain, and that is part of the problem. Here is what we do know:
- Tariffs haven’t affected retailers this year, but they might next year. This next wave of tariffs — as much as 25% on $200 billion of goods from China — would go into effect in September and could actually have a significant impact on consumer goods companies in time. If those tariffs go into effect, particularly at 25%, many businesses will not be able to absorb the associated costs. Even the threat could shake both consumer and business confidence as well as cause other adverse economic outcomes.
- Americans are in debt. Americans are in debt across the board. First, the mortgage debt is climbingpriceshigherhistoric high,trillion
- The transportation market is constrained. Trucking capacity has tightenedtransportation
- Input costs are rising. Companies such as P&G have said increased commodity costs will trickle down to the prices in stores. Coca-Cola
Today’s economy, consumers’ confidence and jobs are all in retail’s favor. But the industry is not immune to the geopolitical risks that could hinder the growth realized this year. While retailers have every reason to be optimistic about the holidays, they also have reasons to be cautious and prepare now for what comes after the season.
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