Retail Pulse Check: Inventory Approaches, Price Moves, and What Q2 is Trying to Tell Us | Reimagining Retail

Summary

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

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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.

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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.

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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.

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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.

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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.

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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."

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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.

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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."

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

Transcript

[Sara Lebo]

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 sint. Discover the power of real time brand lift [e-mail] insights that's C-I N T.com insights hello, listeners. Today is Wednesday, June 4th. Welcome to behind the Reimagining Retail, an E marketer 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 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 Stambor. Hey, Zach.

[Zach Stambor]

Hey, Sarah. How are you?

[Sara Lebo]

I'm good. And also with us is Blake Droach. Hey, Blake.

[Blake Droach]

Hey, Sarah. Good to be back.

[Sara Lebo]

Good to have you. Okay. It is somehow nearly the end of Q2. We have a month left, but we're. 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.

[Blake Droach]

Well, I know you. 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 sort of fresh on the spot answer. Trepidatious.

[Sara Lebo]

Can you define that for not me, but all our listeners?

[Blake Droach]

Concerning, but not necessarily, like, disastrous, but concerned with what's to come.

[Sara Lebo]

Zach, did you come up with a word?

[Zach Stambor]

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.

[Sara Lebo]

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 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?

[Zach Stambor]

Well, there were tariffs the 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 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.

[Sara Lebo]

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 Droach]

That's a good point. And depending on when this podcast comes out and when you're listening to a, tariffs may or may not be in place. Right, because there's the 90 day pause. Right. But the 30% 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, you know, retailers are spending more money to buy purchase items and import items, and is that being passed on to the, 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, you know, what 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.

[Zach Stambor]

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.

[Sara Lebo]

Yeah, I mean, if you had like 10% inflation in place, people would be talking about it a lot. You're. 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. 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 polling, pulling back. And we see consumers preparing for higher tariffs to come into place by spending more. I bought a new iPhone recently, Zach. I think you did too. I think everyone did.

[Zach Stambor]

I think every person on earth bought a new iPhone in the past month or so.

[Sara Lebo]

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 US So that they're prepared for both increased demand or they're prepared for when tariffs hit inventory that's already here. What's. What's the right approach?

[Zach Stambor]

They face a very difficult balancing act, as you said. They. 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 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. 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.

[Sara Lebo]

What does conservative mean in that context? Like bringing less inventory?

[Zach Stambor]

Yeah. Like 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 know, you find some middle ground and within that middle ground, lean toward the more, like I said, conservative direction, Less aggressive.

[Sara Lebo]

Yeah. You don't want to be like providing layaway for consumers that aren't paying for layaway.

[Zach Stambor]

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.

[Sara Lebo]

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 Droach]

It's really almost this experience of deja vu that we were talking about all of this stuff like 2 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, you know, sort of nebulous 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 doing 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, ten 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 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 Lebo]

Yeah, I think if you're a, 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 flak 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?

[Zach Stambor]

Maybe.

[Blake Droach]

I agree.

[Zach Stambor]

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 hey, we don't really like these tariffs. They cost us a lot of money.

[Sara Lebo]

Please, Walmart is the US's biggest employer, right?

[Zach Stambor]

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 Lebo]

There's also the Apple approach which is saying that you will increase prices but they're not related to tariffs. Yeah.

[Blake Droach]

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 the extra dollars that they're spending, you know, on a month to month basis. Right. So 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 like, you know, 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 like an actual brass tax increase in prices as well.

[Zach Stambor]

I think that's right. And I. It's very similar to like when gas prices rise, people feel really bad. The grocery store is another situation like that.

[Sara Lebo]

Like eggs in particular.

[Zach Stambor]

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.

[Sara Lebo]

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 Droach]

There's always money in the banana stand.

[Sara Lebo]

Yeah, that's our advice. No, let's talk about looking ahead. What, what does Q1 say about Q2 and the rest of the year? It can't be saying great things about, about the rest of the year, can it?

[Blake Droach]

Yeah, I think it's, it was interesting. Is 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 because like it shows that consumers are really front loading their purchases and that's going to really soften demand at the, in the, you know, in Q3 and Q4. And if we are seeing front loading of purchases and discretionary categories like electronics or apparel, then that actually could potentially wreak havoc on the holidays. If people are, you know, 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 know, 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 Lebo]

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 like one of the biggest holiday categories. So toys isn't necessarily getting the pull forward right now and, and they're not necessarily going to get the pent up demand later. I think that could be really crushing this holiday season.

[Zach Stambor]

Yeah, I think that's right. And I think, 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 we haven't.

[Sara Lebo]

And guess what? Q3 is going to be weirder in ways you can't possibly imagine yet for sure.

[Zach Stambor]

And we haven't really seen the full impact of these tariffs yet. We haven't seen prices rise. We haven't. Like, 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.

[Sara Lebo]

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.

[Zach Stambor]

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.

[Sara Lebo]

On that note, here's a question that I have that you did not have an opportunity to prep for. So, Blake, you're. 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 Droach]

Erratic.

[Sara Lebo]

That works, Zach.

[Zach Stambor]

Erratic. I was going in a very similar direction.

[Sara Lebo]

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.

[Blake Droach]

Yeah, thanks for having me.

[Sara Lebo]

Thank you, Zach.

[Zach Stambor]

Yeah, thanks.

[Sara Lebo]

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 E marketer podcast made possible by Cindy.