Market Trends July 2023

Homeowners Staying Put
With a nationwide shortage of housing and record-high home prices, more homeowners are choosing to stay in their properties versus move or upgrade to new ones. The deficit doesn’t just affect owner-occupied properties. Rental housing is also increasingly scarce. Today nearly half of American homeowners are living in the first home they purchased.
 
Of those who have lived in their home more than six years, 61% will choose to renovate instead of move. These homeowners are staying in their homes and spending considerable resources on remodeling, renovations, and redecorating.
 
Mortgage rates have more than doubled from last year and housing prices have not declined significantly in most areas, producing a situation where people stay put choose to stay even when they’d like to move to get more room or a better lifestyle.
 
AI in Ecommerce
Amazon caused a stir when they posted two job openings that seemed to signal they were going to implement an AI strategy for ecommerce. Amazon wants to use generative AI to make searching their website more interactive and conversational. This would be a major change from their legacy keyword and filter-based search. Ecommerce has been incorporating AI since the early 2000s, so this is a logical extension that will personalize user experiences. Chatbots use AI to answer questions and send targeted push notifications. Online retailers use AI to deliver personalized ads to shoppers.
 
The global AI market is projected to grow at a compound annual growth rate of 21.4% between 2022 and 2030. That means people can expect to see more AI in all aspects of life. AI capabilities will also become much more sophisticated and advanced. Currently Google, Microsoft and other big players in AI are grappling with how to regulate the industry, prevent AI misuse and protect user privacy while taking advantage of the next technological frontier.
 
Retail Sales Forecast
The National Retail Federation (NRF) projects that retail sales will grow between 4% and 6% this year to between $5.13 trillion and $5.23 trillion this year. The NRF forecast excludes motor vehicles, gasoline and restaurants. Retail sales grew 7% last year to $4.9 trillion. The average annual retail growth pre-pandemic was 3.6%. NRF noted that recent developments in the financial markets and banking sector as well as some unresolved public policy issues complicate the outlook.
 
NRF expects consumers to keep spending, but the pace is likely to be uneven and hard to project. Non-store and online sales, which are included in the total figure, are expected to grow between 10% and 12% year-over-year to a range of $1.41 trillion to $1.43 trillion.
 
Physical stores are still the primary point of purchase, accounting for about 70% of total retail sales. NRF projects full-year GDP growth of around 1%, about half of the growth in 2022, but expects goods and services to grow between 3% and 3.5% for the year.
 
Despite the resilient labor market, NRF anticipates job growth will slow down in the coming months to be more in-keeping with slower economic activity and the prospect of tighter credit and high interest rates. NRF thinks that unemployment will grow to more than 4% by the end of this year.
 
Inventory Shrink a Complex Problem
Overall, the NRF estimates there was $94.5 billion in inventory losses in 2022, attributed to run-of-the-mill shoplifting, organized retail crime (ORC) and employee theft. Employee theft is a growing issue, with nearly 57% of retailers identifying “internal theft” as a growing risk over the past five years, and 20.7% of those saying the threat has become much more of a problem, according to a recent survey by the National Retail Federation (NRF). Employee theft often occurs earlier in the supply chain, from backrooms and distribution centers, so products never make it to the floor. It’s a sensitive issue for retailers, whose reputations are built, in part, on customer service and trust. 
 
Target CEO Brian Cornell has been a very vocal proponent for combatting inventory shrink at all levels and has raised Target’s wages to $15 to $24 an hour across the country, well above the federal minimum wage and that of many states. They are also promoting their Dream to Be program, which offers free tuition for workers earning a degree at more than 40 schools, colleges and universities.
 
The NRF survey suggests that few retailers are focused on this issue and that 70.9% of retailers don’t have a specific financial threshold that dictates when an employee who steals will be prosecuted. Today many retailers caution employees not to attempt to detain or intervene if they suspect someone is stealing, for fear of turning a non-violent crime into a serious incident that threatens customer and employee safety.
 
Right-Sized More Sustainable Packaging
In June, Walmart announced they would ensure that everything they ship arrives in more sustainable materials in packaging sized and suitable for what was ordered and using more recyclable materials and components.
 
They will be using several tactics, including moving from plastic to recyclable paper mailers, right-sizing cardboard-box packaging, giving customers the option to consolidate shipping on ecommerce orders, opting out of single-use plastic bags for online pickup orders, and last-mile delivery efficiencies that reduce mileage and delivery times, according to Walmart.
 
Walmart says they can eliminate about 2,000 tons of plastic waste by January 31, 2024, the end of their fiscal year. Shipping products that can be safely packed in paper mailers will help eliminate some of the 65 million plastic mailers that are generally single-use and not recyclable. Analysts who reported on this story noted that Amazon has a persistent problem and a reputation for shipping items in unsuitable packaging padded with way too much bubble wrap.
 
Large boxes and plastic envelopes are expensive to produce and ship but often big retailers have no other options readily available unless they work to change shipping methodologies from where an item originates and stock a wider range of packaging sizes and types.
 
Fulfillment is a difficult task but one that can really benefit from even small reductions in cost and improvements in efficiency. Both Walmart and Amazon have thousands of distribution centers across the country.
 
Walmart has already eliminated single-use plastic bags (and some paper bags) in many states, instead offering reusable bags for $0.74.

Next Section

© Robert Bosch Tool Corporation.  All rights reserved, no copying or reproducing is permitted without prior written approval.