Consumers are still spending, but inflation is ‘impacting the types of things they buy’: ICSC CEO

ICSC CEO Tom McGee highlights inflation's influence on consumers' spending habits, Amazon Prime Day, online retail sales, and executive departures from retail companies.

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RACHELLE AKUFFO: Amazon reporting its most successful Prime Day yet. But from rising costs to executive turnover, the rest of the retail space is facing a series of challenges in recent weeks. Well, here to discuss is ICSC CEO Tom McGee. Tom, good to have you on the show. So a lot of people are wondering, inflation is up, consumer sentiment going down. Meanwhile, Amazon, 300 million items sold with its Prime Day event. How surprising is this?

TOM MCGEE: I'm not surprised. I think that the consumer has continued to be resilient throughout the course of this year, even with rising inflation. Certainly, that's a concern. And we don't want to see inflation maintain this level for very long. But you have a high personal savings levels. You have a strong job market. The consumer has continued to perform throughout this. Certainly, consumer confidence has taken a hit, but despite a decrease in consumer confidence, that has not yet significantly impacted consumer behavior as of yet.

DAVE BRIGGS: You look through the most popular selling items on Amazon's Prime Day. It is the usual suspects-- Apple Watches, AirPods, Amazon devices. And one thing really stood out to me, as you go down. In the top five was a Frito-Lay chip variety pack, which seemed to say something about the consumer. I'm just not sure what. Tom, you have any theories?

TOM MCGEE: I don't know. Maybe they like potato chips. But I-- look, I think that inflation is clearly impacting the types of things people buy. What they're curating in their basket certainly is having an-- is being impacted by inflation. And you see that all over the retail sector. And you're also seeing a shift in spend right now in the summer months, less on product, more on experience. I mean, you obviously see what's happening at the airports with increased travel demand and so forth.

So there's a lot going on right now that's impacting retail and retail sales and the composition of what people are buying. But the single biggest impact is inflation and the impact that's going to have upon how people spend, how much people spend. To date, as I said, you know, consumers have been resilient. But if we continue to have inflation at this level for much longer, I think it will have an impacy upon consumer spend.

SEANA SMITH: Tom, we're also going to get a good look at this tomorrow morning when we get that retail sales number. And like you were saying, up till now, the consumer has been very resilient. But what are you expecting to see from that number?

TOM MCGEE: I think you'll continue to see strong retail sales. I think that the composition of it may be a little different. As I mentioned, it is the summer months. People are-- you're going to see more money spent on entertainment, particularly food and beverage, which will come out in the retail sales numbers. There'll be things that won't show up in retail sales that are driving people's spend, obviously, travel being one of them. And so you may see some of that transitional spend out of traditional retail sales that are measured in tomorrow's numbers towards more experiential things may impact retail sales.

I notice you also showed the composition from previous months' non-store sales, which is traditionally online, or significantly online. A lot of that is discretionary in nature. And I think that particular segment may be more under stress than some of the things that are more traditional type of retail that are things that people need to live, i.e. groceries and food.

RACHELLE AKUFFO: And what about physical stores, brick and mortar? How do you see that aspect of retail performing? Is it corresponding well with e-commerce, or are you seeing any weaknesses there?

TOM MCGEE: Well, I think it depends on the brand. It depends on the nature of the sector, but generally speaking, physical retail has done very, very well over the course of the last year or so. As the strain of the pandemic has been lifted, you've seen foot traffic go up significantly in stores. And really, retail and the complementary nature of online and physical has really become the story in retail.

To be a successful retailer with only minor exceptions, you really have to be able to deliver a consistent consumer experience, whether that's in a store or online. And you're seeing so many more retailers leverage their online ordering and so forth capabilities, but having the store being the delivery mechanism, whether that means someone coming to pick up in the store and you see things like Click and Collect and so forth, and/or they deliver directly from the store because of that proximity to the consumer, which lowers their delivery costs and, obviously, has a positive impact on margin.

DAVE BRIGGS: Tom, an interesting trend spotlighted by "The Wall Street Journal" today about the men and women leading these retail companies. It's a departure of CEOs and C-suite level executives really accelerating this year. Is there anything to that trend? Or is this merely coincidence?

TOM MCGEE: No, I don't think there's anything particularly surprising on that. Look, retail is an incredibly competitive industry. Certainly, the strain on retail has been significant over the course of the last number of years, particularly. It was really at the epicenter of the pandemic and the response to the pandemic. There might have been some delay and succession planning that naturally took place as leaders saw a company through the height of the pandemic.

So I think all of those things are playing a part in that. But certainly, leading a retail company right now is a challenge. It's a challenge because of all the different dynamic things that are happening in the industry. Not just the challenges of inflation, but that convergence between technology and physical retail, which has really accelerated significantly over the course of the past year or so.

DAVE BRIGGS: Many challenges await those CEOs. ICSC CEO Tom McGee, appreciate it.