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Well, there was some positive news in the latest inflation data, but we are still talking about a time where tariffs
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are having an impact on retailers and of course that means that there's probably
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impact on the consumer as well. So, what is the state of retail at this moment? Pleasure to be joined by Gideon
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Bournestein who is an assistant professor of finance here at the Wharton School. Gideon, great to talk to you.
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How are you today? I'm doing great. Thanks for having me. Thank you. And I guess let me start there because there
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is so much going on and there is a lot of focus on how retailers are dealing with this period of time. Uh how do you
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view kind of how the retail sector is handling all of this back and forth? Yeah, I think so far retail is holding
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up but just barely. I mean it's a very hard time with all um tariffs and we have consumers um you know also trying
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to understand are tariffs going to go up go down all this is just making it very
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hard um for retail overall um for us as macroeconomists we're looking at the
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retail sector to understand the overall state of the macroeconomy and see whether consumer spending is going to go
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down. So I think that's why there's also a lot of attention to understand what's
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going on in the retail sector. So what are you looking at specifically then? I think one of the key numbers there is
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just simply looking at um retail sales. So for example, we've seen um in the
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latest report um retail sales in April were kind of flat. They were not changing um much. We had a few months of
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retail sales going up slightly, but that is one key number that we're looking at.
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We're also looking at consumer confidence report where um we see the numbers there. There was a slight
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increase but numbers are still quite low when we're looking at expectations what
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consumer expect um to happen in the future. And I think this whole time is really um is all about tariffs to some
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extent. That's the number one factor that is affecting um retail. Well, and and in the latest kind of round of of
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earnings reports that we've seen, it seems like you're you're seeing
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companies, retailers at least say that they are trying to mitigate the impact of tariffs. What that means, you know,
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it could be a variety of different things, but I think the consensus is a lot of people believe that tariffs
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eventually end up leading to either higher costs for the consumer or some sort of negative impact.
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Yes. No, it's it's definitely correct. When when tariffs are going up, um
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retailers, they're facing different choices. Either they're not going to
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change their prices, then their margins are going to take a hit, or they're going to raise their prices, but then
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they risk losing customers. And then they also have to think, how long do we expect these tariffs to stay with us? If
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it's something very temporary, we don't want to lose customers, so maybe we can
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take the hit. But this uncertainty is just it's a very um hard thing to deal
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with for retailers and for many retailers. We heard stories about them trying to get products in earlier from
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overseas. So it really brings in how the supply chain is kind of handling a lot of these issues as well. Yes. No, that's
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absolutely true. There's both, you know, do we want to frontload? Do we want to
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buy now um as much as we can before tariffs may continue to go up? Um do we shift the supply chain that may take
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time and is also expensive? Do we move um goods that we buy from China to Vietnam or Bangladesh? Yeah, those
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things I think retailers are thinking about all of these things right now. How much then when companies say that
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they are trying to absorb the impact of the terrorists, how much can they potentially do that and in what kind of
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manner? Yeah, I think at the end of the day the the margins at the retail sector are not
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um very large. So if tariffs are here to stay, it's going to be hard not to um
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raise prices. So, some companies are trying not to raise prices and shift, but I think that it's it's going to be
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hard. Um, then the play is you're looking at the product portfolio of what you're offering and you're trying to
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understand um the elasticity of demand from the consumer side. You want to make sure that the goods for which you're
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raising the prices are not ones that are going to scare your customers away. So I
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think there's a lot of attention now to understand where can we raise prices
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without losing um as many consumers overall. Then I guess with certain items which the consumer might be willing to
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put on a credit card to make a purchase for the question becomes are they willing to do that right now with some
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of the uncertainties that are out there in the economy. Yes. I think normally um
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the the retail sector is a bit like the canary in the coal mine in the sense that we're all looking at it to
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understand where the economy is going because it's all driven by how consumers
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what do they feel right it's easiest you know if things are bad you're not going
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to cut um your rent you have to pay your rent you're going to go to your doctor
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what you're going to do is you're going to cut the discretionary spending so
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you're going to cut a lot on retail um nowadays it's a little bit harder for us
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to just look at retail and and understand you know the impact for the macroeconomy because we have tariffs on
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the one hand and then we have consumer um confidence consumer expectations on the other hands but so both of these
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things are playing a role how has how has the kind of shifting target that we've seen from Washington DC and
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Capitol Hill on policy played a uh a challenging part in this process? No. Yes. Uh no, I think it's extremely
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challenging. I think that there is uncertainty on what is going to happen. We learn one day tariffs in China are
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above 100% the next day back to 30%. So it just makes decision making and understanding from the retail side what
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is going to be in the future extremely difficult and similarly on the consumer side um extremely difficult. So when we
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looked at consumer confidence, yes, in May numbers were going um up as tariffs were you know going down from their
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initial high levels but at the same time the overall level is still quite low. The expectation number is below 80. So
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it's still you know there's a risk of recession with those types of numbers.
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So then what are you most watchful on right now? I guess kind of from a combined perspective of how companies
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are dealing with this but also the consumer is dealing with this. Yes. No, I think yeah me myself the Fed
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as well they're monitoring these um you know these numbers very carefully to
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understand where things are going. Right? We have inflation. Inflation was very high you know some time ago. It's
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now starting to go down. It's still in not great levels overall. Right? We have
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to make sure that it continues to go down. These tariffs that are going to affect it as well. At the same time, we
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want to make sure that unemployment is not starting to um go up drastically. So, it's a very difficult time, I think,
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for the Fed to, you know, to think about what are the ideal actions. Gideon, great to have you with us today. Thanks
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very much for your time. All the best. Thank you so much for having me, Dan. Thank you. to Gideon Bournestein who is
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assistant professor of finance here at the Wharton School.