Retail Pulse Check: Inventory Approaches, Price Moves, and What Q2 is Trying to Tell Us | Reimagining Retail
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Hello, listeners. Today is Wednesday, June 4th. Welcome to Behind the Numbers, Reimagining Retail, an eMarketer podcast made possible by Synth. This is the show where we talk about how retail collides with every part of our lives. I'm your host, Sarah Lebo. Today's episode topic is taking pulse of retail so far in 2025.

Let's meet today's guests. Joining me for today's episode, we have two podcast regulars. First up, it's Zach Stambour. Hey, Zach. Hey, Sarah. How are you? I'm good. And also with us is Blake Droesch. Hey, Blake. Hey, Sarah. Good to be back. Good to have you. Okay.

It is somehow nearly the end of Q2. We have a month left, but we're creeping along. This also means we're at the end of Q1's earnings season, which means it's a good time to take stock of how the year has gone so far.

We have the data from Q1 and we have the vibes from Q2 to give us a good perspective on how the rest of 2025 might go. So taking those two things into account, data and, of course, vibes, let's jump in. I am first going to ask each of you to describe Q1's earning seasons in one word. Blake, go first. Okay.

Well, I know you said you were going to ask us this question, but I completely forgot about it after the prep meeting. So you're going to get a really fresh on the spot answer. Trepidatious. Can you define that for not me, but all our listeners?

but not necessarily like disastrous, but concerned with what's to come. Zach, did you come up with the word? I did. I prepared for this question.

And I, but I, but I do have two words. I think of it kind of the way I think of like sour beer and descriptors. It's like weird and funky. It just had so much weird stuff in it. We had the California wildfires in January. We had winter storms. Do you remember this? We had Trump come into office and we had a whole, whole,

lot of tariff talk, tariff action, tariff stuff. And so all of that has just created like a really unusual dynamic. Yeah, I wrote down five words in case either of you came without a word and needed one, but you kind of covered it. I wrote down uncertain, quiet, cautious, unconfident, muted. Tariffs didn't really go into effect until April, and they're still obviously still

swirling around kind of, but it definitely feels like they still made an impression on Q1 earnings. So why is that? Why do we have a tariff impact in Q1 without tariffs themselves? Well, there were tariffs. To start, the day that President Trump referred to as Liberation Day was April 2nd, but the

Well, before then, tariffs were front and center. And there were many tariffs that were in effect, that were teased, that were threatened, that were in place, that were pulled back, that were announced. Starting on February 1st. And February 1st was when Trump signed an executive order to impose tariffs on imports from Mexico, Canada, and China, just like three days later on February 4th.

And then there was a whole slew of other tariff-related stuff, ranging from more tariffs on China, a pullback on tariffs from Canada and Mexico, tariffs on auto imports, threats on tariffs on European wine and champagne and spirits, and a whole slew of other stuff. So tariffs were really front and center. I have this theory that no consumer almost...

barely any consumers know if tariffs are in place or not right now, or to what extent they are in place, or how long they will be in place.

And as a result, they are just behaving as if the maximum tariffs are currently in place or about to be in place. That's a good point. And depending on when this podcast comes out and when you're listening to it, tariffs may or may not be in place. Right. Because there's the 90 day pause. Right. But the 30 percent tax on China was not part of that 90 day pause.

and the sort of the announce and pause and sort of leave room for negotiation sort of tactic that Trump has rolled out is creating a lot of ambiguity around sort of if there are tariffs and also if the prices that you're paying in the store is a result of said tariffs, right? Because I think that, you know, there's also a big difference between the fact that

that retailers are spending more money to purchase items and import items, and is that being passed on to the consumer yet? But you now have the courts getting involved, right? And that is going to add sort of another layer of stop and go, which is going to make it almost impossible for the average shopper to have a good understanding at any given time what the

they're paying for and why they are seeing prices go up or why they are deciding to front load their purchases in a fears that they might go up. And you left out the 10% across the board tariffs, which seem like that will just be in place forever, at least if the administration has its way. It seems like that is just status quo in the new normal.

which is a very different environment than we've had in like a century. Yeah, I mean, if you had like 10% inflation in place, people would be talking about it. A lot. You're definitely right. I know the average consumer is not sure what's happening because I am not the average consumer. I host a retail podcast and I day to day and certainly category to category, item to item, am not sure what's happening. Right.

So from the consumer side, we definitely have behavior reflecting the environment. We've seen, as we've talked about before on the podcast, consumer confidence take a dip. And we see kind of, I feel like, two things happening. We see consumers reacting to feeling like tariffs are in place by pulling back. And we see consumers preparing for higher tariffs to come into place by spending more money.

I bought a new iPhone recently. Zach, I think you did too. I think everyone did. I think every person on Earth bought a new iPhone in the past month or so. So let's talk about the retailer side of this. They're struggling with both having too much inventory because people are pulling back on shopping and also wanting to stockpile inventory so that it's in the U.S., so that they're prepared for both increased demand or they're prepared for when tariffs hit with inventory that's already here. What's the right approach?

They face a very difficult balancing act. As you said, they order too much or they just order the right amount but misread what consumers want. Then they have a lot of stuff. If they order too little, then the shelves are empty. And then if they wait and just like order at the same sort of pace or cadence that they usually do, well, then tariffs might kick in and they might be hit with a really high price tag on that stuff and might have to

increased prices more than they would otherwise. And so a lot of retailers like Amazon and VF Corp and Urban Outfitters are hedging against the uncertainty by bringing stuff in. But you can only do that for so much because it does carry risk. You have carrying costs as well. And so I think the only thing that retailers can do is lean in a slightly conservative direction and

So that they aren't caught on the wrong side of these volatile policies or just unpredictable consumer behavior, which might be consumers just saying, like, I'm not going to spend money right now because I don't know what's going on. What does conservative mean in that context? Like bringing in less inventory? Yeah, like you want to front load something.

some more stuff than usual. But you might not go full boat. You might not get all of the stuff that you need for the holiday season now, but

You know, you find some middle ground and within that middle ground lean toward the more, like I said, conservative direction, less aggressive. Yeah, you don't want to be like providing layaway for consumers that aren't paying for layaway. We just saw in the first quarter American Eagle talk about the huge write-off that they had to take because they just misjudged what it was that consumers want. And so nobody wants to be caught in that situation because it costs millions and millions of dollars. It's also just

just not a good look for shareholders and earnings, which is not something that we focus on on this podcast, but...

is the outcome of earnings. It's really almost this experience of deja vu that we were talking about all of this stuff like two years ago when the supply chain was a disaster and consumer behavior was just fluctuating way more erratically than retailers were used to and they weren't able to stay on top of it. And there was all of this sort of nebulous talk around

optimizing the supply chain, whatever that meant, right. And it was really just about being able to, you know, do whatever you could with whatever technology you had available to stay on top of these changes in consumer behavior and be able to react to it as quickly as possible, which is actually, you know, the demand for to be able to react quickly, it just became

way more relevant than it ever has been. So I think, you know, what we're going to see play out is like, and I think Zach did a very good job of like describing like what retailers should be doing right now. But it's going to be an even more of an uphill battle, right? Like six months, 10 months from now, if the economy is not in a good place and there's a

ton of shifts in different consumer behavior, in different socioeconomic factors contributing to buying patterns. And it's really going to be a test of like, if those retailers who, you know, air quotes, optimize their supply chain a couple of years ago, can actually reap some rewards from it, because it's really going to be tested if we head into a tough economic

spot when consumers are not spending or spending erratically. Yeah, I think if you're a high quality supply chain management vendor right now, congratulations, you have your sales pitch. Hopefully retailers can afford to make those kinds of decisions. One recurring theme we've been dancing around that we saw in every Q1 earnings script I read was prices.

Costco, Home Depot, and Kroger all said they would not be raising prices in response to tariffs. But then Walmart said it would raise prices due to tariffs, which got a lot of flack from the administration. What's happening here? Are Costco, Home Depot, Kroger, all of these companies going to be able to shoulder tariffs without raising prices? Maybe. Great. Yeah.

I mean, like I said before, there's this near universal tariff in place, which means nearly every company is incurring higher costs.

Now, some retailers with higher margins may be able to eat some of those costs. Some may be able to lean on their suppliers to absorb some of those costs. But undoubtedly, at some point, in some way, in some fashion, some of those costs will be passed on to the consumer. I think Walmart was very squarely sending a message to the administration saying,

saying, hey, we don't really like these tariffs. They cost us a lot of money. Please make them go away. Walmart is the U.S.'s biggest employer, right? Yeah. And so they were trying to use that sway on the administration. And once they made that move, once they made those comments, it does make it easier for everyone else to increase prices as well. There's also the Apple approach, which is saying that you will increase prices, but they're not related to tariffs.

Yeah, and I think there's also just it becomes the perception of things costing more money that really causes consumers to switch up their behavior rather than it is sort of the net impact of consumption.

the extra dollars that they're spending on a month to month basis. Right. So like if Walmart comes out and says, hey, like we're going to be forced to raise prices, if Nike says that they're raising prices, like if these big household brands and retailers are talking about this stuff, that's almost going to have a bigger impact on like how consumers feel about the economy and how they spend.

than it will be if they're actually putting their budget into a spreadsheet and finding out that they're spending more money. So it's a communications thing as much as it is an actual brass tacks increase in prices as well. I think that's right. And it's very similar to when gas prices rise, people feel really bad.

The grocery store is another situation like that. Eggs in particular. Yeah, but I keep waiting for Trader Joe's to increase the price of the 23 cent banana. But once these costs start to rise and inch up, people will take notice and will alter their behavior to what Blake was saying just a few minutes ago. If this were a visual podcast, this is where I'd have us insert a gif of the arrested development. What could a banana cost, Michael? $10? $10.

There's always money in the banana stand. Yeah, that's our advice. No, let's talk about looking ahead. What does Q1 say about Q2 and the rest of the year? It can't be saying great things about the rest of the year, can it? Yeah, I think it's as interesting as like, in a way when like a retailer would report like better than expected sales, that would almost at least to me seem like

a bad thing. Um, because like it, it shows that, uh, consumers were really front loading their purchases and, uh,

that's going to really soften demand in Q3 and Q4. And if we are seeing front-loading of purchases in discretionary categories like electronics or apparel, then that actually could potentially wreak havoc on

on the holidays. If people are spending money that they were going to spend at the end of the year or just bulking up for whatever reason on those items that you only really purchase maybe one or two big discretionary purchases a year or however many, if that's all happening during H1, then we're going to see a lot of softening in

the second half of the year, particularly in that crucial Q4. Well, people are pulling forward things that they know they need to buy or feel they're going to need to buy. So like my example is I bought a new iPhone. I'm planning to buy new shoes. Things that are sort of like

potential needs. What they may be pulling forward less is discretionary things like toys, which we know is one of the biggest holiday categories. So toys isn't necessarily getting the pull forward right now, and they're not necessarily going to get the pent-up demand later. I think that could be really crushing this holiday season. Yeah, I think that's right. And I think it's hard to read too much into Q1 earnings because it was so weird. Q2

Also very strange because we had all of these tariff announcements, pullbacks, changes, shifts, all that sort of stuff. And guess what? Q3 is going to be weirder in ways you can't possibly imagine yet. For sure. And we haven't really seen the full impact of these tariffs yet.

We haven't seen prices rise. We haven't. Even though these companies have talked about, "Oh yeah, we're going to raise prices." If you look at the inflation numbers, it's 2.1%. That's pretty close to the 2% target that the Fed sets and it's down. We haven't seen shortages start to appear, but they're pretty likely to happen.

We have started to see consumers pull back. And so there's like a lot of challenges that are likely ahead. And so we probably will see some pretty significant deceleration in the second half of the year if the current conditions remain in place.

Which, who knows? Yeah, I mean, we usually use the term economic uncertainty as a euphemism for like a bad economy, right? Like it's a softer way of saying that. But I think that right now we really are talking about uncertainty. It is. I mean, I don't know how anyone can plan for the medium term, let alone the long term.

It's just impossible because the conditions are constantly changing. On that note, here's a question that I have that you did not have an opportunity to prep for. So, Blake, you're on equal footing here. I would like you to, before it's even over, define Q2 in one word. Blake, go first.

Erratic. That works, Zach. Chaotic. I was going in a very similar direction. Okay, so we are moving from trepidatious and weird and funky to erratic and chaotic. Well, that is all we have time for today. Thank you so much for being here, Blake. Yeah, thanks for having me. Thank you, Zach. Yeah, thanks. Thank you to our listeners and to our team that edits the podcast, Q1 through Q4.

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