Retail Pulse Check: Inventory Approaches, Price Moves, and What Q2 is Trying to Tell Us | Reimagining Retail
On today’s podcast episode, we check in on how retailers’ financials are looking this year, different approaches to inventory, and what Q2 is telling us. Listen to the conversation with our Senior Analyst Sara Lebow as she hosts Senior Analysts Blake Droesch and Zak Stambor.
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Episode Transcript:
Sara Lebow (00:00):
Are your brand campaigns as effective as they could be? If you're only getting insights when the campaign is over, then the answer is no. To make better campaign decisions, you need real-time measurement, you need Lucid Measurement by Cint. Discover the power of real-time brand lift measurement at cint.com/insights. That's C-I-N-T.com/insights.
(00:26):
Hello, listeners. Today is Wednesday June 4th. Welcome to Behind the Numbers: Reimagining Retail, an EMARKETER podcast made possible by Cint. This is the show where we talk about how retail collides with every part of our lives. I'm your host, Sara Lebow. 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 Zak Stambor. Hey Zak.
Zak Stambor (00:53):
Hey, Sara. How are you?
Sara Lebow (00:55):
I'm good. And also with us is Blake Droesch. Hey, Blake.
Blake Droesch (00:58):
Hey, Sarah. Good to be back.
Sara Lebow (01:00):
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 Q1s 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. 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 Q1s earnings seasons in one word. Blake, go first.
Blake Droesch (01:39):
Well, I know you said you were going to ask us this question, but I-
Sara Lebow (01:44):
I did.
Blake Droesch (01:44):
... completely forgot about it after the prep meeting, so you're going to get a really fresh on the spot answer. Trepidatious.
Sara Lebow (01:53):
Can you define that for not me, but all our listeners?
Blake Droesch (01:58):
Concerning, but not necessarily a disastrous but concerned with what's to come.
Sara Lebow (02:04):
Zak, did you come up with a word?
Zak Stambor (02:06):
I did. I prepared for this question, but I do have two words. I think of it the way I think of sour beer in descriptors, it's 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 a really unusual dynamic.
Sara Lebow (02:41):
I wrote down five words in case either of you came without a word and needed one, but you covered it. I wrote down, uncertain, quiet, cautious, unconfident, muted. Tariffs didn't really go into effect until April, and they're still obviously swirling around, but it definitely feels like they still made an impression on Q1 earnings. Why is that? Why do we have a tariff impact in Q1 without tariffs themselves?
Zak Stambor (03:10):
Well, there were tariffs. To start, the day that President Trump referred to as Liberation Day was April 2nd, but 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 three days later on February 4th. Then there was a whole slew of other tariff related stuff ranging from more tariffs on China, a pullback on tariffs on Canada and Mexico, tariffs on auto imports, threats on tariffs on European wine and champagne and spirits and a whole slew of other stuff. Tariffs were really front and center.
Sara Lebow (04:08):
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.
Blake Droesch (04:33):
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, because there's the 90-day pause. But the 30% tax on China was not part of that 90 day pause and the announce and pause and leave room for negotiation tactic that Trump has rolled out is creating a lot of ambiguity around if there are tariffs and also if the prices that you're paying in the store is a result of said tariffs. Because I think that there's also a big difference between the fact that retailers are spending more money to purchase items and import items, and is that being passed onto to the consumer yet? But you now have the courts getting involved and that is going to add 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 they're paying for and why they are seeing prices go up or why they are deciding to front load their purchases in fears that they might go up.
Zak Stambor (05:51):
And you left out the 10% across the board tariffs, which seem like-
Blake Droesch (05:51):
Right.
Zak Stambor (05:56):
... that will just be in place forever, at least if the administration has its way. It seems like that is just status quo and the new normal, which is a very different environment than we've had in a century.
Sara Lebow (06:11):
If you had 10% inflation in place, people would be talking about it.
Zak Stambor (06:16):
It's a lot.
Sara Lebow (06:16):
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. 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, 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. I bought a new iPhone recently, Zak, I think you did too. I think everyone did.
Zak Stambor (06:59):
I think every person on earth bought a new iPhone in the past month or so.
Sara Lebow (07:04):
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 US 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?
Zak Stambor (07:24):
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 flood of stuff. If they order too little, then the shelves are empty, and then if they wait and just order at the same 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 increase 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 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, "I'm not going to spend money right now because I don't know what's going on."
Sara Lebow (08:32):
What does conservative mean in that context, bringing in less inventory?
Zak Stambor (08:35):
Yeah, you want to front load 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. You find some middle ground and within that middle ground to lean toward the more, like I said, conservative direction, less aggressive.
Sara Lebow (08:57):
You don't want to be providing layaway for consumers that aren't paying for layaway.
Zak Stambor (09:01):
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 the consumers want. And so nobody wants to be caught in that situation because it costs millions and millions of dollars.
Sara Lebow (09:16):
It's also 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.
Blake Droesch (09:24):
It's really almost this experience of deja vu that we were talking about all of this stuff 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 nebulous talk around optimizing the supply chain, whatever that meant. And it was really just about being able to 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 actually the demand for it to be able to react quickly it just became way more relevant than it ever has been.
(10:15):
I think what we're going to see play out is, and I think Zak did a very good job of describing what retailers should be doing right now, but it's going to be an even more of an uphill battle. 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 if those retailers who "optimized" 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.
Sara Lebow (11:09):
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?
Zak Stambor (11:52):
Maybe?
Sara Lebow (11:53):
I agree.
Zak Stambor (11:54):
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, "Hey, we don't really like these tariffs, they cost us a lot of money. Please make them go away."
Sara Lebow (12:34):
Walmart is the USs biggest employer, right?
Zak Stambor (12:36):
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.
Sara Lebow (12:50):
There's also the Apple approach, which is saying that you will increase prices, but they're not related to tariffs.
Blake Droesch (12:56):
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 the net impact of the extra dollars that they're spending on a month-to-month basis. If Walmart comes out and says, "Hey, we're going to be forced to raise prices," if Nike says that they're raising prices. If these big household brands and retailers are talking about this stuff, that's almost going to have a bigger impact on 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. It's a communications thing as much as it is like an actual brass tax increase in prices as well.
Zak Stambor (13:51):
I think that's right, and it's very similar to when gas prices rise people feel really bad, the grocery stores and other situations like that. I keep-
Sara Lebow (14:01):
Eggs in particular.
Zak Stambor (14:03):
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.
Sara Lebow (14:17):
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?"
Blake Droesch (14:26):
There's always money in the banana stand.
Sara Lebow (14:28):
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?
Blake Droesch (14:42):
I think it's interesting is in a way when a retailer would report better than expected sales, that would almost, at least to me, seem like a bad thing because it shows that consumers are really front loading their purchases, and 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 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.
Sara Lebow (15:50):
Well, people are pulling forward things that they know they need to buy or feel they're going to need to buy. My example is I bought a new iPhone, I'm planning to buy new shoes, things that are potential needs. What they may be pulling forward less is discretionary things like toys, which we know is one of the biggest holiday categories. 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.
Zak Stambor (16:23):
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.
Sara Lebow (16:40):
Guess what? Q3 is going to be weirder in ways you can't possibly imagine yet.
Zak Stambor (16:47):
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 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?
Sara Lebow (17:38):
We usually use the term economic uncertainty as a euphemism for a bad economy, it's a softer way of saying that. But I think that right now we really are talking about uncertainty.
Zak Stambor (17:49):
It is. 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.
Sara Lebow (18:00):
On that note, here's a question that I have that you did not have an opportunity to prep for. 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.
Blake Droesch (18:18):
Erratic.
Sara Lebow (18:19):
That works. Zak?
Zak Stambor (18:21):
Chaotic. I was going in a very similar direction.
Sara Lebow (18:25):
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.
Blake Droesch (18:36):
Yeah, thanks for having me.
Sara Lebow (18:38):
Thank you, Zak.
Zak Stambor (18:39):
Yeah, thanks.
Sara Lebow (18:40):
Thank you to our listeners and to our team that edits the podcast, Q1 through Q4. Please leave a comment or review and remember to subscribe to our Behind the Numbers podcast. We'll be back next Wednesday with another episode of Reimagining Retail, and on Friday, join Marcus for another episode of Behind the Numbers, an EMARKETER podcast made possible by Cint.
Are your brand campaigns as effective as they could be? If you're only getting insights when the campaign is over, then the answer is no. To make better campaign decisions, you need real-time measurement, you need Lucid Measurement by Cint. Discover the power of real-time brand lift measurement at cint.com/insights. That's C-I-N-T.com/insights.
(00:26):
Hello, listeners. Today is Wednesday June 4th. Welcome to Behind the Numbers: Reimagining Retail, an EMARKETER podcast made possible by Cint. This is the show where we talk about how retail collides with every part of our lives. I'm your host, Sara Lebow. 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 Zak Stambor. Hey Zak.
Zak Stambor (00:53):
Hey, Sara. How are you?
Sara Lebow (00:55):
I'm good. And also with us is Blake Droesch. Hey, Blake.
Blake Droesch (00:58):
Hey, Sarah. Good to be back.
Sara Lebow (01:00):
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 Q1s 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. 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 Q1s earnings seasons in one word. Blake, go first.
Blake Droesch (01:39):
Well, I know you said you were going to ask us this question, but I-
Sara Lebow (01:44):
I did.
Blake Droesch (01:44):
... completely forgot about it after the prep meeting, so you're going to get a really fresh on the spot answer. Trepidatious.
Sara Lebow (01:53):
Can you define that for not me, but all our listeners?
Blake Droesch (01:58):
Concerning, but not necessarily a disastrous but concerned with what's to come.
Sara Lebow (02:04):
Zak, did you come up with a word?
Zak Stambor (02:06):
I did. I prepared for this question, but I do have two words. I think of it the way I think of sour beer in descriptors, it's 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 a really unusual dynamic.
Sara Lebow (02:41):
I wrote down five words in case either of you came without a word and needed one, but you covered it. I wrote down, uncertain, quiet, cautious, unconfident, muted. Tariffs didn't really go into effect until April, and they're still obviously swirling around, but it definitely feels like they still made an impression on Q1 earnings. Why is that? Why do we have a tariff impact in Q1 without tariffs themselves?
Zak Stambor (03:10):
Well, there were tariffs. To start, the day that President Trump referred to as Liberation Day was April 2nd, but 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 three days later on February 4th. Then there was a whole slew of other tariff related stuff ranging from more tariffs on China, a pullback on tariffs on Canada and Mexico, tariffs on auto imports, threats on tariffs on European wine and champagne and spirits and a whole slew of other stuff. Tariffs were really front and center.
Sara Lebow (04:08):
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.
Blake Droesch (04:33):
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, because there's the 90-day pause. But the 30% tax on China was not part of that 90 day pause and the announce and pause and leave room for negotiation tactic that Trump has rolled out is creating a lot of ambiguity around if there are tariffs and also if the prices that you're paying in the store is a result of said tariffs. Because I think that there's also a big difference between the fact that retailers are spending more money to purchase items and import items, and is that being passed onto to the consumer yet? But you now have the courts getting involved and that is going to add 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 they're paying for and why they are seeing prices go up or why they are deciding to front load their purchases in fears that they might go up.
Zak Stambor (05:51):
And you left out the 10% across the board tariffs, which seem like-
Blake Droesch (05:51):
Right.
Zak Stambor (05:56):
... that will just be in place forever, at least if the administration has its way. It seems like that is just status quo and the new normal, which is a very different environment than we've had in a century.
Sara Lebow (06:11):
If you had 10% inflation in place, people would be talking about it.
Zak Stambor (06:16):
It's a lot.
Sara Lebow (06:16):
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. 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, 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. I bought a new iPhone recently, Zak, I think you did too. I think everyone did.
Zak Stambor (06:59):
I think every person on earth bought a new iPhone in the past month or so.
Sara Lebow (07:04):
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 US 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?
Zak Stambor (07:24):
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 flood of stuff. If they order too little, then the shelves are empty, and then if they wait and just order at the same 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 increase 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 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, "I'm not going to spend money right now because I don't know what's going on."
Sara Lebow (08:32):
What does conservative mean in that context, bringing in less inventory?
Zak Stambor (08:35):
Yeah, you want to front load 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. You find some middle ground and within that middle ground to lean toward the more, like I said, conservative direction, less aggressive.
Sara Lebow (08:57):
You don't want to be providing layaway for consumers that aren't paying for layaway.
Zak Stambor (09:01):
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 the consumers want. And so nobody wants to be caught in that situation because it costs millions and millions of dollars.
Sara Lebow (09:16):
It's also 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.
Blake Droesch (09:24):
It's really almost this experience of deja vu that we were talking about all of this stuff 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 nebulous talk around optimizing the supply chain, whatever that meant. And it was really just about being able to 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 actually the demand for it to be able to react quickly it just became way more relevant than it ever has been.
(10:15):
I think what we're going to see play out is, and I think Zak did a very good job of describing what retailers should be doing right now, but it's going to be an even more of an uphill battle. 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 if those retailers who "optimized" 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.
Sara Lebow (11:09):
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?
Zak Stambor (11:52):
Maybe?
Sara Lebow (11:53):
I agree.
Zak Stambor (11:54):
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, "Hey, we don't really like these tariffs, they cost us a lot of money. Please make them go away."
Sara Lebow (12:34):
Walmart is the USs biggest employer, right?
Zak Stambor (12:36):
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.
Sara Lebow (12:50):
There's also the Apple approach, which is saying that you will increase prices, but they're not related to tariffs.
Blake Droesch (12:56):
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 the net impact of the extra dollars that they're spending on a month-to-month basis. If Walmart comes out and says, "Hey, we're going to be forced to raise prices," if Nike says that they're raising prices. If these big household brands and retailers are talking about this stuff, that's almost going to have a bigger impact on 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. It's a communications thing as much as it is like an actual brass tax increase in prices as well.
Zak Stambor (13:51):
I think that's right, and it's very similar to when gas prices rise people feel really bad, the grocery stores and other situations like that. I keep-
Sara Lebow (14:01):
Eggs in particular.
Zak Stambor (14:03):
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.
Sara Lebow (14:17):
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?"
Blake Droesch (14:26):
There's always money in the banana stand.
Sara Lebow (14:28):
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?
Blake Droesch (14:42):
I think it's interesting is in a way when a retailer would report better than expected sales, that would almost, at least to me, seem like a bad thing because it shows that consumers are really front loading their purchases, and 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 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.
Sara Lebow (15:50):
Well, people are pulling forward things that they know they need to buy or feel they're going to need to buy. My example is I bought a new iPhone, I'm planning to buy new shoes, things that are potential needs. What they may be pulling forward less is discretionary things like toys, which we know is one of the biggest holiday categories. 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.
Zak Stambor (16:23):
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.
Sara Lebow (16:40):
Guess what? Q3 is going to be weirder in ways you can't possibly imagine yet.
Zak Stambor (16:47):
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 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?
Sara Lebow (17:38):
We usually use the term economic uncertainty as a euphemism for a bad economy, it's a softer way of saying that. But I think that right now we really are talking about uncertainty.
Zak Stambor (17:49):
It is. 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.
Sara Lebow (18:00):
On that note, here's a question that I have that you did not have an opportunity to prep for. 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.
Blake Droesch (18:18):
Erratic.
Sara Lebow (18:19):
That works. Zak?
Zak Stambor (18:21):
Chaotic. I was going in a very similar direction.
Sara Lebow (18:25):
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.
Blake Droesch (18:36):
Yeah, thanks for having me.
Sara Lebow (18:38):
Thank you, Zak.
Zak Stambor (18:39):
Yeah, thanks.
Sara Lebow (18:40):
Thank you to our listeners and to our team that edits the podcast, Q1 through Q4. Please leave a comment or review and remember to subscribe to our Behind the Numbers podcast. We'll be back next Wednesday with another episode of Reimagining Retail, and on Friday, join Marcus for another episode of Behind the Numbers, an EMARKETER podcast made possible by Cint.