The retail fashion industry is never an easy one to monitor or advise, as it’s a delicate mix of global geopolitical forces, local economic pressures and consumer psychology. Today, that balance is even harder to sort out. In an interview with Hertzman Global Intelligence, Ian S. Fredericks, CEO of Capital Solutions (Americas) at financial services and retail consulting company Hilco Global, and executive director of the Hilco Global Consumer and Retail practice and global head of data and innovation, offers a broad view of where things stand today.
HGI: Let’s start with tariffs. What are you hearing from retailers about the refund process, any concerns of retaliation and plans to pass recovered money onto shoppers?
Ian Fredericks: Refunds are starting to come, and honestly, the process is moving faster than I would have imagined. The administration did make a comment about “remembering” the people who apply for tariff refunds, but with so many companies filing, that would be a lot to go after. As for prices, I feel pretty confident saying that if retailers raised prices because of tariffs, it’s extremely unlikely they’re going to try to give that money back to the consumer.
HGI: What will happen with the class action lawsuits against retailers to recoup tariff hikes?
IF: Retailers probably didn’t start passing tariffs along right away because much of the inventory already on shelves didn’t immediately carry higher costs. And if prices did rise, they probably weren’t fully commensurate with tariffs. Retailers likely absorbed some of it and passed some along.
Trying to determine what consumers are owed would be a logistical nightmare. You’d have to separate how much was tariffs, inflation, transportation costs, or simply a normal price increase. Retailers will fight those lawsuits like crazy, especially now that they’re dealing with volatility tied to the Iran war, inflation and rising oil prices. This is America, so I expect lawsuits, but I just don’t think the juice is worth the squeeze.
HGI: Let’s say retailers had raised prices, but tariffs ultimately go away. Would they bring prices back to what they were before?
IF: I don’t think it’s that black and white. If you look at the Michigan Consumer Sentiment Survey, we’re in a K-shaped economy. The middle and bottom are still getting squeezed, but as long as the stock market keeps going up, higher-income consumers still feel pretty good. Retailers may offer incentives to get consumers shopping again, especially if the Iran war drags into the holiday season, but they probably won’t say they’re lowering prices because tariffs disappeared. Instead, they’ll position it as “helping the consumer,” which is a much better message.
Most people are just trying to put food on the table and make a good life for their families. A lot of consumers feel grocery stores and retailers are taking advantage of them, and there’s probably some of that going on.
HGI: The Iran war has shone a light on how dependent the world is on oil, but the U.S. has its own oil. Can that circumvent some price issues?
IF: Oil is a global commodity, so when global oil supplies are disrupted, that increases costs across transportation, manufacturing, shipping and consumer goods. The war has also highlighted how interconnected supply chains really are. If energy costs rise for manufacturers, those higher costs flow through importers and eventually hit consumers. It just has this massive ripple effect, and we’re likely going to remain in a higher-price, inflationary environment for quite some time.
HGI: Which retailers are best positioned to survive?
IF: Discount retailers, off-pricers and dollar stores usually perform well in volatile environments because consumers trade down when budgets tighten, but those businesses also rely heavily on excess inventory from other retailers. If larger retailers pull back on orders, there may be less merchandise available for off-pricers to buy.
HGI: Are there headwinds we’re not even thinking of?
IF: The ripple effects are broader than people realize. For example, airlines are avoiding parts of the Middle East and Russian airspace, which means flights take longer, require more fuel and increase labor costs. There really isn’t much right now making life easier for the average consumer.
HGI: Are retailers pulling back on ordering due to the uncertain climate? And will that cause inventory to be less of a problem?
IF: Retailers may be cautious, but many still depend heavily on the holiday season to make their year. Even in uncertain conditions, retailers tend to buy optimistically because they need back-to-school and holiday sales to ‘right the ship.’ But supply chain disruptions may force them to make decisions earlier than usual and secure inventory sooner. Absent some major economic intervention, it’s probably going to be a tough rest of the year for retailers.
At the same time, this doesn’t feel like a traditional recession. It’s more of a “tale of two retails.” Some brands with loyal customers are still busy, while weaker retailers are struggling with soft traffic and weak demand.
HGI: As brands and retailers shift supply chains out of China, are they happy with their sourcing maps now? Or are they still experimenting and sorting things out?
IF: Most retailers seem reasonably comfortable with where they are, although many are still optimizing their supply chains. If I were a retailer, I’d probably be trying to do more with Mexico because of its labor force, demographics and economic ties to the U.S. Canada also remains extremely important economically, and we should be leaning more heavily into that alliance as well.
