A funny thing happened on the way to the next recession: the consumer said, “No thanks.”

With surprisingly strong retail sales numbers for January, shoppers are continuing to act like it’s business as usual when it comes to buying things. Driven by high employment numbers, a modest reduction in inflation and even increased social security payments for seniors, the overall economy remains basically healthy.

But if it’s business mostly as usual for shoppers, it’s anything but for retailers. With memories of getting caught flatfooted in previous downturns they are taking some serious steps to dial back some of their operations, laying off thousands of workers, cutting back on some pandemic-era spiffs and generally being more conservative in their planning for 2023. Think of it as a giant seesaw, with consumers on one end trying to tilt things with more spending and on the other, retailers saying we’ve seen this before and we won’t get fooled again. Except it’s not a playground game.

Whatever the latest retail numbers turn out to be and who might be the next domino to fall, 2023 is shaping up as a generally confusing year for the industry.

We Shop, Therefore We Buy

The January retail numbers were a pleasant surprise for an industry that saw a generally disappointing holiday season. But there are enough caveats in all of this to fill an Excel spreadsheet. The Christmas shopping season really began in October for most retailers and if December wasn’t that strong, it really needed to be put into the context of a 90-day spread, not the traditional 30 days. Promotional events from Amazon, Walmart, Target and others jumpstarted the shopping process and took sales away from later in the year.

Consumers got spooked about shortages and supply chain issues and figured they should not be postponing their holiday purchases. That pushed up buying activity too.

But the biggest factor impacting recent retail sales has been the simple act of trying to anniversary numbers. For many industry sectors, particularly food, big ticket items like furniture and appliances and consumer electronics, the 2020 and 2021 numbers were off the charts. That continued into early 2022 before they stopped more suddenly than a Road Runner.

But that screeching halt was only by comparison. The simple fact of the matter is that consumers are continuing to buy. It’s where they are spending that money that is the difference. A new study shows that 70 percent of consumers say they are cutting back on nonessentials as they devote more of their disposable incomes to food, gas, drugstore purchases. and mortgage and rent payments. They are also traveling more and spending more on restaurants and entertainment. The pie slices are just getting rearranged, but the size of that pie hasn’t changed all that much. So, where does that leave apparel retail?

Retail Redo

Whatever the consumer is doing retailers are clearly trying to get their houses in order. With their inventory levels still higher than they’d like and worries about sudden supply chain disruptions with products coming out of Asia they are taking some specific steps to be situated.

The biggest ones involve staffing levels. A wide swath of retailers, from Amazon and Saks to Wayfair have announced employee reductions of various levels, but often in the thousands. These come in context of even larger layoffs in the tech sector so retail may not be getting quite the same exposure. Retailers who brought on additional workers during the pandemic boom times are very much into downsizing.

Then there are the more subtle cutbacks in purchasing perks. Amazon, for example, announced earlier this year it was upping the threshold for free delivery from its grocery end to $150 per order. It had been just $35. Other free shipping incentives seem to be fading away at many online sellers. And free returns from some retailers are no longer free.

On the physical side, some retailers who offered things like curbside pick-ups have cut back or eliminated that service, another sign that there’s a major rethink of what a store is willing to do to make a sale. And this pales in comparison to the gradual shrinkage of product packaging offering the smaller-sized product at the same price … or more.

Finally, after a lull in retail bankruptcies and meltdowns after the initial surge during the early days of the pandemic we’re starting to see more marginal businesses falter. Party City, Tuesday Morning (back for a second helping of bankruptcy) and Sears Hometown (doesn’t get much more marginal) are among the names to file. But others like Bed Bath & Beyond, Rite Aid and Mattress Firm are on some short lists to be next.

The next wave of retail earnings, starting later in February, should provide a lot more clarity on the current state of business and what companies are forecasting going forward. The latter of course need to be taken with some degree of skepticism given retailers’ generally dismal track record in predicting what’s next. And speaking of predictions, retailers might benefit from taking a more holistic view of all the relevant trends and shifts in consumer behavior as factors in making projections. It’s not just a numbers game, it is the influence of subtle – and not so subtle – market dynamics that feed into planning and predicting.

Party Like it’s 2019?

Whatever the latest retail numbers turn out to be and who might be the next domino to fall, 2023 is shaping up as a generally confusing year for the industry. The good times have clearly come and gone but they aren’t necessarily being replaced by their opposite…that is, bad times.

Smart companies are comparing their current results to 2019 – not the pandemic years – and getting a more realistic picture of where they really are. They may be pulling back in key areas but not necessarily circling the wagons. In the meantime, many consumers aren’t necessarily getting the memo that they need to stop shopping. Those discretionary dollars, especially as the prices of things like gas and eggs are moderating, may be going to different wallets but they don’t appear to be going away.

The unbridled optimism that made many retailers positively giddy is gone. Its successor is still very much a work in progress.