Trouble for America’s favorite everything store bodes ill for small businesses.
“Target on Wednesday said its quarterly profit fell nearly 90% from a year ago, as the retailer followed through on its warning that steep markdowns on unwanted merchandise would weigh on its bottom line,” reported CNBC Wednesday morning.
“The big-box retailer missed Wall Street’s expectations by a wide margin, even after the company itself lowered guidance twice,” wrote Melissa Repko for CNBC, referring to the fact that Target cut its own profit outlook twice already this year, in May and June.
“If we hadn’t dealt with our excess inventory head on, we could have avoided some short-term pain on the profit line, but that would have hampered our longer-term potential,” Target Chief Financial Officer Michael Fiddelke told reporters on an earning call. “While our quarterly profit took a meaningful step down, our future path is brighter.”
While market-watchers and certainly Target stockholders hope Fiddelke is correct, this latest dark cloud on the U.S. economic horizon doesn’t bode at all well for small business retailers further downstream from a mega-retailer giant like Target.
“As inflation continues to dominate business decisions, small business owners’ expectations for better business conditions have reached a new low,” said National Federation of Independent Businesses chief economist Bill Dunkelberg recently. “On top of immediate challenges facing small business owners including inflation and worker shortages, the outlook for economic policy is not encouraging either as policy talks have shifted to tax increases and more regulations.”
The story of plummeting U.S. consumer sentiment, of inflationary pressures, a looming recession period and myriad post-pandemic economic concerns has been splashed across the front page of newspapers and news media sites for well over a year.
In October 2021, the Washington Post was extolling its readers to keep calm, lower their expectations and stop shopping so much: “Don’t rant about short-staffed stores and supply chain woes.”
“For generations, American shoppers have been trained to be nightmares,” scolded the Atlantic in August 2021. “The pandemic has shown just how desperately the consumer class clings to the feeling of being served.”
Vox agreed in November 2021: “It’s time for Americans to buy less stuff.”
“Consumers are getting grumpy,” warned CNN in January 2022, quoting an Oxford Economist who called the drop in retail sales, “disconcerting.”
As of August 2022, the Post, the Atlantic and Vox seem to have gotten their wish: Americans are indeed shopping less.
Quite a bit less, it would seem. And it is easy to understand why.
“In December, U.S. consumer prices rose at a 7 percent annual rate, their fastest pace since the early 1980s,” wrote Eric Levitz for the New Yorker on February 2, 2022. “As a result, real wage growth has been negative for most American workers, according to the Atlanta Fed’s wage tracker.”
“Thus, there’s no great mystery here: People simply do not like it when their living standards decline!” concluded Levitz, before giving “5 Reasons Voters Underrate the Biden Economy.”
According to Levitz, “Americans hate inflation more than they like low unemployment,”; “Americans haven’t suffered inflation in a generation,”; “It’s the pandemic, stupid,”; “Workers are doing better, but not that much better,”; and, “The media is manufacturing discontent.”
While Levitz may have a point, in particular about the media, there are other danger signs in addition to Target’s staggeringly low earnings report.
“U.S. factory activity slows to two-year low as clouds gather over economy,” cautioned Yahoo Finance on July 1, 2022. “Atlanta Fed GDP tracker shows the U.S. economy is likely in a recession,” echoed CNBC that same day.
Though not everyone agrees the U.S. has entered a period of recession, MarketWatch reported this week that the “U.S. economy was the worst performing of G-7 countries in the second quarter as U.K. also reports downturn.”
The current level of inflation is costing the average American over $700 per month, according to some analysts.
“Americans are piling up credit card debt as they struggle to keep up with the high cost of living,” reported CNN on August 2, 2022. “Consumers paying $10,000 more than in a ‘normal’ economy,” for used cars, reported CBS News on July 22, 2022.
Fortunately for small business owners and U.S. consumers, falling prices at the pump will eventually show up in the prices they are paying for goods and services. When this happens, retail sales should see some improvement.
Unfortunately, it might still be some time before the full impact of measures taken by the Biden Administration to lessen the sting of inflation are felt.
(contributing writer, Brooke Bell)