Behind the Numbers: Reimagining Retail – Retail Pulse Check: Inventory Approaches, Price Moves, and What Q2 is Trying to Tell Us

Podcast Information:

• Title: Behind the Numbers: an EMARKETER Podcast
• Host: Sara Lebo
• Guests: Zach Stambor and Blake Droach
• Episode: Retail Pulse Check: Inventory Approaches, Price Moves, and What Q2 is Trying to Tell Us | Reimagining Retail
• Release Date: June 4, 2025

Introduction

In the June 4, 2025 episode of Behind the Numbers: Reimagining Retail, host Sara Lebo engages with regular guests Zach Stambor and Blake Droach to dissect the current state and future outlook of the retail sector. The discussion revolves around the Q1 earnings season, the pervasive impact of tariffs, inventory management challenges, pricing strategies, and predictions for Q2 and beyond.

Q1 Earnings Season: A Climate of Uncertainty

The episode kicks off with Sara asking Zach and Blake to encapsulate Q1's earnings season in a single word. Blake describes it as "trepidatious" (01:39), highlighting the underlying concerns without indicating disaster. He clarifies, "Concerning, but not necessarily, like, disastrous, but concerned with what's to come."

Zach offers a more nuanced perspective, labeling Q1 as "weird and funky" (02:05) due to unprecedented events such as California wildfires, winter storms, the political climate with Trump's administration, and especially the fluctuating tariff policies. He remarks, "It just had so much weird stuff in it," emphasizing the unusual dynamics shaping the earnings landscape.

Sara adds her observations, noting that despite tariffs not being fully implemented until April, their shadow looms large over Q1, affecting consumer confidence and retail performance. She connects this to the broader sentiment of uncertainty with words like "uncertain, quiet, cautious," reflecting the market's cautious optimism and anxiety.

The Pervasive Impact of Tariffs

A significant portion of the conversation delves into the complexities of tariffs and their multifaceted impacts on both retailers and consumers. Zach outlines the timeline and variety of tariff announcements starting from February 1st, underscoring their persistent presence: "Tariffs were really front and center." He details the extensive scope, including tariffs on imports from Mexico, Canada, China, and specific sectors like auto imports and European beverages.

Blake expands on this by discussing the ambiguity tariffs create for consumers. He observes, "There's a big difference between the fact that retailers are spending more money to buy purchase items and import items, and is that being passed on to the consumer yet?" This uncertainty leads to unpredictable consumer behavior, where shoppers either pull back or preemptively stockpile goods in anticipation of future price hikes.

Sara hypothesizes that most consumers are unaware of the exact status of tariffs, causing them to act as if maximum tariffs are in effect. Blake concurs, adding that the administration's tactic of announcing and pausing tariffs cultivates this confusion, making it difficult for consumers to understand price fluctuations.

Retailers' Inventory Strategies: Balancing Act

The discussion shifts to the critical challenge retailers face in managing inventory amidst tariff-induced uncertainty. Sara highlights a dual dilemma: retailers are either burdened with excess inventory due to reduced consumer spending or are compelled to stockpile in anticipation of future demand and potential tariff increases.

Zach articulates the delicate balance required, stating, "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... they might have to increase prices more than they would otherwise."

Blake emphasizes the risks of aggressive inventory adjustments, noting high carrying costs and the potential for significant financial write-offs. He references American Eagle’s recent misjudgment in Q1, which resulted in substantial losses: "American Eagle talk about the huge write off that they had to take because they just misjudged what it was that consumers want."

The consensus among the hosts is that a conservative approach to inventory management is imperative. This means retailers may need to front-load inventory cautiously without overcommitting, ensuring they aren’t left holding unsold stock or facing empty shelves.

Price Adjustments and Consumer Perception

The conversation moves to how major retailers are handling pricing in response to tariffs. Sara points out that while Costco, Home Depot, and Kroger have declared their intention not to raise prices, Walmart has taken a contrasting stance by indicating a price increase due to tariffs, attracting criticism from the administration.

Zach reflects on the diversity of responses, suggesting that some retailers with higher margins can absorb tariff costs better, but ultimately, "some of those costs will be passed on to the consumer." He interprets Walmart’s decision as a strategic move to signal dissatisfaction to the administration, potentially paving the way for other retailers to follow suit.

Blake adds that the mere perception of rising prices can significantly influence consumer behavior, sometimes more so than actual price increases. He compares it to fluctuating gas prices, where consumer sentiment can drive spending patterns irrespective of the actual cost changes: "If these costs start to rise and inch up, people will take notice and will alter their behavior."

Sara humorously references the popular TV show Arrested Development to illustrate the potential absurdity of significant price hikes, underscoring the delicate balance retailers must maintain to avoid alienating consumers.

Looking Ahead: Q2 and the Rest of 2025

Projecting into the future, Sara and her guests discuss the implications of Q1 for Q2 and the remainder of the year. Blake suggests that while better-than-expected sales might superficially appear positive, they could indicate consumers are front-loading purchases—potentially leading to decreased demand in the latter half of the year, especially during the crucial Q4 holiday season.

Zach concurs, highlighting that discretionary categories like electronics and apparel, if front-loaded, may see diminished sales during the holidays. However, Sara counters by noting that essential purchases might not see the same front-loading, potentially leaving traditional holiday categories like toys vulnerable to reduced demand.

The hosts agree that economic uncertainty remains high, and Q3 is anticipated to bring even more unpredictability. Zach remarks, "We probably will see some pretty significant deceleration in the second half of the year if the current conditions remain in place."

Conclusion

The episode concludes with Sara summarizing the key takeaways: the retail sector is navigating a period marked by tariff-induced uncertainty, inventory management challenges, and cautious pricing strategies. The outlook for the remainder of 2025 remains uncertain, with potential softening in consumer demand and further economic fluctuations on the horizon.

Sara thanks her guests, Zach and Blake, for their insights and encourages listeners to subscribe and stay informed through future episodes of Behind the Numbers. The discussion underscores the importance of adaptability and strategic planning for retailers in an ever-evolving economic landscape.

Notable Quotes:

• Blake Droach (01:39): "Concerning, but not necessarily, like, disastrous, but concerned with what's to come."
• Zach Stambor (02:05): "It just had so much weird stuff in it."
• Zach Stambor (07:24): "They order too much or they just order the right amount but misread what consumers want."
• Blake Droach (09:16): "Nobody wants to be caught in that situation because it costs millions and millions of dollars."
• Zach Stambor (12:32): "It's like when gas prices rise, people feel really bad."
• Blake Droach (16:22): "It's going to be a test of like, if those retailers who optimized their supply chain a couple of years ago can actually reap some rewards from it."

Stay tuned for more insights and analysis on the rapidly changing landscape of digital media and retail on Behind the Numbers.