Inflation is so last season.

In many parts of retail, particularly clothing, there’s a sea of red price-reduction stickers washing across stores and websites as retailers mark down their unwanted stock. Shoppers should make the most of these sales — they may be as good as it gets for a while.

Many US retailers, led by Walmart Inc. and Target Corp., stocked up on goods last fall and winter only to face a downturn in demand this year as consumers divert more of their spending to increasingly expensive fuel and food. Meanwhile, those who are buying non-essential items have moved away from pandemic-era purchases, such as home furnishings and loungewear, and toward suitcases and smart attire.

That’s left many retailers with too much stock. So they are slashing prices to clear shelves and warehouses.  

The proportion of US clothing, footwear and accessories being sold at a discount increased this year, compared with 2021, according to retail intelligence company EDITED. The markdowns have also been steeper. And it’s a similar picture in the UK.

The reductions aren’t confined to apparel. Home furnishings, electronics, bikes, sneakers and even scented candles are all on sale after retailers from Best Buy Co. to Bath & Body Works Inc. warned about sales and profit. US online prices fell for the first time in more than two years in July, according to Adobe Analytics, with the biggest reductions in electronics, computers and toys, while food and pet supply costs remain elevated.

This is creating a mixed picture for the back-to-school season. Average selling prices in most categories are rising, according to data provider NPD Group. But they are falling in apparel and footwear thanks to more promotions kicking in. Not only is that good news for hard-pressed parents, but the rash of discounts may be helping to ease inflation in the broader economy, feeding into the soft-landing narrative that’s emerging. Indeed, a decline in apparel prices from June was one of the factors behind a moderation in US inflation in July.

Yet consumers and policymakers should not take the current scenario for granted. Amid the fallout from the great inflation meeting the great pandemic rotation, consumer goods companies will soon start to reevaluate their buying strategies.

A year ago, retailers stocked up in the second half as supply chains became increasingly fragile. They were more concerned about not disappointing customers with empty shelves than about how this would impact inventory. That has ultimately led to the pile-up now.

At the same time, there’s mounting evidence that poorer consumers are becoming more cautious — along with some early signs that price pressure is rising up the income ladder. And although the supply chain hasn’t totally reverted to normal — Target described it as “spotty” in its first-quarter earnings call — Asian factories are open, containers are available and freight rates are coming down.

All of these factors mean that retailers are likely already cutting back on orders for the forthcoming winter holiday season. Walmart, Target, Home Depot Inc. and Kohls Corp. will all update on their inventory positions with earnings next week.

If stock levels rebalance as the excess is cleared over the next few months, and smaller fall and winter orders start to arrive, then discounting should start to stabilize or come down. That would be good for retailers’ profits, which have been strained by soaring costs and the need to mark down bloated inventories. But it won’t be welcome for stretched shoppers.

However, if expectations for a soft landing prove too optimistic, and Americans cut back on discretionary spending even more, then stores may continue to struggle to clear stock and even downsized shipments may exceed consumer demand. That would extend discounts into the fall and winter.

The back-to-school shopping season should give a sense of which scenario is more likely.

In the four weeks until the end of July, back-to-school sales volumes were 1% lower than 2021 and 13% behind 2019, according to NPD. But with higher prices in many categories, dollar sales should perform better than the volume of units sold. It’s also still early in the season. Even so, its worth remembering that last year, parents were flush with cash from savings and stimulus payments, while children returned to in-person learning for the first time in over a year.

Back to school is usually a good indicator of consumer demand for the winter holidays. This will be more true than ever this year.  

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Opinion columnist covering consumer goods and the retail industry. Previously, she was a reporter for the Financial Times.

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