November 02, 2023

Retail Suppliers - FY2023 Outlook Dampened by Promo Uptick

By Sabrina Bullock
Back-to-school sales were solid for most suppliers, but sell-through dipped during September–October, when limited assortments failed to pique customers’ interest ahead of holiday promotions.
  • 10 of 15 suppliers reported neutral outlook for FY2023 sales (more vs. August), as retail accounts remain more flattish yy, hindered by slow late September to October
  • Orders for FY1H24 up yy for 9 of 14 suppliers, reflecting some retailers adding newness or brands, some suppliers opening new accounts; continued gains in off-price expected
  • Area to Watch: Some suppliers anticipating heavier-than-planned promos and markdowns during FY4Q23 to help drive store traffic
Supplier Outlook for FY2023
(number of sources)

Three of 15 suppliers (in HBA and home) said their outlooks for FY2023 [February-January] were positive helped by various factors like strong sell-through in low-cost cosmetics. (In OTR Global’s August note, six of 13 held a positive view.) Ten held neutral outlooks and two held negative outlooks. Although the retail sector has shown overall resilience that aligned with last year’s trends, growth has not materialized as anticipated for some. Larger accounts, such as Walmart Inc., have resorted to higher markdowns or reduced orders for some suppliers’ goods, resulting in a somewhat subdued outlook. Because of lackluster fall floor sets at some retail accounts, suppliers cited the need for more promotional events and markdowns to spur sales and anticipate higher promotions for holiday during FY4Q23.

Top Accounts: Nine of 14 suppliers expect order growth in FY1H24 (February–July) floor sets as buyers remarked to suppliers they had cut back too far in FY1H23. Also, several suppliers said smaller manufacturers are producing less or have gone out of business, opening more opportunities. Off-price retailers are expected to have significant order growth during FY1H24, led by The TJX Cos. Inc.’s T.J Maxx. In contrast, suppliers said they expect Walmart to place smaller-than-anticipated discretionary orders because the retailer is overstocked, especially in apparel.

Supplier Holiday Outlook
(number of sources)
Supplier FY1H24 Order Outlook
(number of sources)


Supplier accounts with expected growth and declines in FY1H24
Off-Price retailers4-
T.J. Maxx3-
Best Buy1-
Grocery stores1-
Home Depot1-
J.C. Penney1-
Big Lots-1
Drug store channel-2
Note: Some sources gave more than one answer

Suppliers With Positive FY2023 Outlook
Two of four HBA suppliers primarily dealing in low-cost beauty products said sales were overall solid during FY3Q23 and anticipated robust holiday results, underpinned by the continued expansion of the low-cost beauty goods market. Both project a positive order trajectory in FY1H24, supported by heightened consumer interest in budget-friendly beauty. One said additional promotions were needed in some categories and planned heightened promotions in FY4Q23.

The third supplier (home goods) said current trends within accounts were mainly on plan and predicted strong sell-through trends would persist through the holidays. His most robust accounts were home improvement chains and ecommerce retail platforms. However, the supplier reported reduced FY1H24 orders yy because mass retailers were expected to scale back on order volumes. Additionally, the supplier said Walmart intended to postpone resets on his goods until May.

CategoryOutlookFY1H24 OrdersQuote
BeautyThe overall sales performance is strong, buoyed by the successful introduction of a new product. However, the beauty sector is expected to increase promotional activity during FY4Q23 and the holidays. New product launch is expected to continue to bolster sales through FY1H24. Orders planned up yy.“We’ll have to run additional promos this year, but overall, it’ll go OK. We had a new product launch, which is giving us an edge.”
BeautyOutlook similar to August because the company is experiencing robust growth. Most accounts exhibiting strong sales increases yy. This positive trend is particularly pronounced across accounts focused on low-cost beauty products.Category growth is expected to continue to propel order trends.“Growth is strong right now, and most accounts are up significantly.”
HomeThe company has demonstrated strong performance in brick-and-mortar and online home improvement stores, supporting a likelihood of continued growth in this sector. Additionally, the company anticipates further growth through online platforms, citing Wayfair Inc. and Inc. as critical contributors to the projected increase.Orders are expected to be down yy as mass retailers struggle more with sell-through.“We’re in the process of putting in our budgets right now — so far, we expect FY2024 to be down. We’re trying to figure out how to combat that. We’re trying to figure out where we find new business. We own vast real estate in our category, and we’re not seeing growth from those bays. We feel as though we’re stuck in a rut just swapping products. We don’t have any orders yet for 2024, but we do have commitments, so we already know it will likely be down. For example, Walmart, which is a huge account, we know it’s going to be down. So, yes, we’re slightly less optimistic than earlier in the year. Also, in previous years, Walmart would reset in January or February, and now they’ve moved it to May.

Suppliers With Mixed FY2023 Outlook
Ten of 15 suppliers across home, apparel, HBA and office supplies held a neutral view. with (Five — in apparel, HBA, home — of 13 held a neutral view in OTR Global’s August note.) Many indicated that sales trends in their accounts largely met expectations during FY3Q23. However, growth has been elusive as retailers limit in-store inventory, which resulted in uninspiring floor displays and customers holding out for deeper promotions or discounts. Additionally, suppliers believe customer spending during FY3Q23 shifted toward events, travel and other activities, which further limited sales. An office supplier said, “I don’t think back-to-school was particularly strong in any account. It didn’t decrease, just had limited growth.”

Home: Four of five home suppliers had a neutral perspective for the remainder of FY2023. Sell-through in their accounts was mainly flattish yy during FY3Q23, but most anticipated holidays would remain similar to slightly up yy, helped by holiday gift giving and enticing promotional events. “I think customers will show up for the holiday. Maybe not a ton better, but at least similar year to year. For most student loan repayments, those people were OK and could make it work or take it out of other budgets, like travel. Usually, holidays overall, even in the past during weak economies, trends flat as people don't want to give up on giving gifts but adjust budgets in other ways.”

Order trends for FY1H24 increased yy for two of four and remained flat for two, helped by new accounts and additional items at some retailers. Orders remained flattish for some retail accounts because of a reluctance for retailers to over-extend and better control inventory.

Apparel: Three of five apparel sources also offered a mixed perspective; all three said there was some slowdown in select fall seasonal apparel but that overall sell-through had remained similar yy in FY3Q23. One supplier reported strong branded apparel sell-through, while one said licensed wear with limited distribution sold well in select markets and at a higher-than-normal price. One said, “Customers will spend, but they have to have something that will perk their interest.”

All three highlighted off-price strength as customers sought lower-cost options to stretch budgets in some apparel categories. All three anticipated growth in FY1H24; two expect growth from new accounts because of fewer manufacturers.

All three expected retailers to seek out branded or unique products, which would aid growth during FY1H24. One noted Walmart had been more promotional recently and had decreased FY1H24 orders, signaling higher-than-expected apparel inventory levels.

HBA: Two of four HBA suppliers said they had a neutral perspective of the remainder of FY2023. One source reported robust sales, albeit with a noticeable deceleration in late September and early October in specific retail accounts, such as drug stores. The supplier said too many products are kept under lock and key, hindering sales. Another, specializing in low-cost beauty products, agreed and described the drug store channel as weaker than expected. The supplier said, “The lockdown of goods is creating a headwind for some accounts, so we are seeing a bigger shift to Amazon. Who will wait for a drugstore to unlock goods when they can order off Amazon and likely have the product that day in urban areas?”

The supplier said for low-cost beauty products, do-it-yourself (DIY) trends were somewhat weaker than expected in the early part of FY3Q23, and promotions had increased. However, he projected orders for FY1H24 would show an improvement yy as DIY activity has begun to rebound. “Some categories are expected to grow. We saw a shift in people returning to salons after everything opened. Still, with budgets under constraints, we are seeing some DIY categories improve, which will likely continue into next year.”

CategoryOutlook FY1H24 OrdersQuote
ApparelSimilar outlook to August. Retailers are generally avoiding new inventory and focusing on maintaining sales. Off-price is strong, while mass is weaker than anticipated.Orders are expected to be up yy. There are some bright spots in retail. Some accounts that struggled in FY2023 are adding some newness next year as inventory cuts in some categories were too deep.“It’s flattish as there are not a lot of new trends right now. [Mattel Inc.’s] Barbie was good in mass and mid-tier, but it’s done and won’t likely help FY4Q23 as much. Retailers that added unique SKUs to floor sets saw those sell through, so customers will spend if given the right merchandise.”
ApparelWeaker view since August because Walmart's sell-through is slower than anticipated. Off-price is stronger and expected to have a solid FY4Q23.Other manufacturers have reduced business or lost sales, allowing this supplier to grow in FY1H24.“Walmart is slow. They haven’t canceled orders but are trying to grab more money and charging for everything.”
ApparelSimilar outlook to August. Warm weather caused a few SKUs to have slower-than-anticipated sell-through, but the basics were in line overall.The company plans to capitalize on retailers leaning into brands more often and smaller manufacturers unable to benefit from that growth, aiding FY1H24 orders.“Business will have a decent holiday. I think we’ll take share from other brands. Our product is good. Distribution is top-notch. We have the essentials, which will sell well.”
HomeSentiment improved compared with August as the company began to see slight order gains for FY4Q23 deliveries.Order trends for FY1H24 so far are slightly up yy as the company plans for growth in FY2024.“I think the holidays will be the holidays. Buyers are planning for increases year to year. If the holidays are softer than planned, retailers will hold back on 1Q orders but must have goods in the stores during the holidays.”
HomeThe company is opening new accounts.Order trends for FY1H23 are expected to increase yy, aided by the new sales team.-
HomeLimited assortments failed to pique customer interest, but the supplier believes spending will return to retail for the holidays.Orders for FY1H23 are trending similar yy at most accounts.“Accounts are primarily flat on orders. FY3Q23 struggled slightly more than anticipated because money shifted to travel and from the home category. Stores only wanted to stock what was sold before and align assortment, so customers didn’t know where to go to buy. [ Inc.’s] Bed, Bath and Beyond did a lot of business, but now retailers are not picking that up as much as FY2Q23 because they didn’t increase the in-store selections to how they should have.”
HomeSentiment is similar to August. August and September were steady, but October was weaker yy as customers held off on purchasing ahead of anticipated holiday promotions.Order trends for FY1H24 remained flat yy for most accounts as retailers hesitated to add to floor sets.“Customers are inclined to purchase items that provide a sense of well-being or are unique, such as travel-related products, while hard goods are experiencing a slowdown. August and September saw positive sales, but retailers are cautious, only ordering what is necessary for replenishment. Retailers will have to look at floor sets and add some excitement. Customers are not going just to purchase the same things next year — innovation is the only thing that will increase orders and sales.” 
BeautyThe category has required extra promotions to stimulate growth recently. Additionally, there has been a shift toward from the drug store channel, as limited accessibility has hurt sales.Orders for FY1H24 are projected to increase yy, as DIY trends are expected to be stronger.“The business is still there, but brands are more aggressive promotional stance. Gas pricing, cost of food jumped significantly, and interest rates are all creating strong headwinds for the general economy.”
Home/ Personal CareThe source had a sentiment similar to August. Sell-through hindered in late September. Planning bigger promotions yy for holidays to encourage growth.Orders for FY1H24 are uncertain as most accounts order on a replenishment basis.“People did a lot of remodeling during COVID, and sales in home improvement have dropped off this year. I’m hoping that it picks up next year. Because of interest rates and home prices, people will stay in their homes as long as possible.”
OfficeSell-through trends remained somewhat similar yy in retail. The supplier is anticipating FY4Q23 trends to be flat as well.Order growth in FY1H24 stems from commercial account growth, while retail is expected to be flattish.“Our retail accounts are flat, but we are making gains in our commercial accounts. For next year, I think it just feels uncertain. Orders are flattish so far, but we don’t know how raw material costs, shipping, etc., will go, which might affect margins. It’s not like Walmart is going to accept price increases.”

Suppliers With Negative FY2023 Outlook
Two of five apparel suppliers provided a pessimistic outlook. One highlighted the struggles major retailers such as Walmart and Costco Wholesale Corp. have faced; Walmart canceled orders in anticipation of weaker sales and Costco faced difficulties in discretionary items. The other supplier shared this sentiment and cited poor sell-through rates and a lack of appetite from retailers for new inventory. Both highlighted the apparel industry’s challenges as retailers try to maintain low levels and lack newness.

CategoryOutlookFY1H24 OrdersQuote
ApparelNegative outlook on FY2023 continues as retailers keep lowering orders yy.Supplier anticipated FY1H24 orders to deteriorate as retailers continue to hold off on adding to floor sets and limiting purchases.“For FY1Q24, we have spring assortments of production that are building back up again, but when I look at the product assortment, it used to be a core, five-pocket stretch, three-inch, five-inch shorts, a lot of core, and what's in fashion. Now, it’s all fashion with no core at all. Zero. Because the consumer has voted that ‘if I already have it, I ain’t buying it.’ The plans now are happening on the other side of the year.”
ApparelOverall order trends continue to deteriorate yy. Walmart struggled with apparel in October and looks to lower inventory levels.Supplier plans on some accounts down yy, while others are planned up.“No one is doing well right now. Walmart is canceling business, and Costco is struggling in discretionary items.”

Pricing: Seven of 14 suppliers expected retail pricing to remain the same yy during FY2024. Two suppliers expect price increases across the board. Three more said the likelihood of price increases would vary depending on the specific category or brand; newly introduced products were likely to experience the most significant hikes. Two additional suppliers said price increases in FY2024 would hinge on whether the cost of goods rises and whether they can pass those increased costs onto retailers.

Shrink: Only four of 13 suppliers said they were aware that retail shrink had increased within their retail accounts, primarily in home and beauty; Walmart and the drug store channel were most frequently mentioned by suppliers. Some retailers have asked suppliers to adjust their packaging or sold products from locked cases to prevent theft. A home supplier said, “Maybe slightly higher, but I think many retailers use theft as an excuse for poor performance. Walmart basically forced us into the RFID across all new products going into the stores. Other retailers haven’t asked us for this, but it should be fairly easy now that we’ve done it.” A beauty supplier said, “Walmart has a big issue with theft, and Walmart Canada is thinking of doing more of a shop-in-shop for beauty because theft is so high. We discuss it with mass, grocer, and drug retailers but not so much at other accounts.”

Suppliers did not increase shrink allowances to retailers. An office goods supplier said, “We offer a volume allowance and build planogram costs. We ask for all fees before we price the products, and there is no more money after, even if the shrink is higher. We haven’t had any issues with retailers asking for extra support.”