Retail industry could face wave of bankruptcies - June 23, 2022

Executive Leadership Briefing

President Joe Biden called for a three month suspension on gas taxes in an effort to reduce financial pressure at the gas pump while calling on states to take similar action. Although the intention of the tax holiday is to reduce the cost of gas for consumers, some fear the move would only provide relief for the retailer and wholesaler. Analysis from the Penn Wharton Budget Model found that consumers do not tend to receive the full benefit from gas tax holidays and furthermore do not tend to curb inflation. The tax holiday is unlikely to pass in Congress as Democratic House Speaker Nancy Pelosi stopped short of endorsement.

Electric vehicles could account for 54% of global car sales by 2035 if demand remains high, according to a new report from AlixPartners. The report’s prediction of sales growth comes even as automakers hike prices for vehicles due to the doubling of raw material costs throughout the COVID-19 pandemic. The firm said it expects manufacturers to push new models less and focus on profitability going forward after companies such as Ford saw profits dry up for vehicles due to commodity costs. Some industry actors have argued the consolidation of parts and increased availability of cell components can lower the cost of electric vehicles for automakers.

The U.S. Food and Drug Administration is poised to ban Juul vaporizer products due to youth vaping concerns. Juul will have the option to pursue an appeal or challenge the decision in court, however the ban could be a significant financial blow to majority stakeholders in the company. News of the ban caused a surge in vape purchases as consumers rushed to buy up the product, although some experts said many consumers are likely to just switch to competing products on the market. Anti-smoking advocates expressed optimism over the impending ban, but supporters of vaping are concerned the decision could represent the loss of a product that could help people quit smoking.

The retail industry could face a wave of bankruptcies as the holiday season approaches, according to industry experts. Despite only four retail companies filing for bankruptcy so far this year, observers cautioned that a “perfect storm” could be brewing for some companies as low-income shoppers have been hit by inflation and high-income consumers spend more on luxury goods. Cosmetic company Revlon, which filed for bankruptcy in mid-June, enjoyed a surge in its stock price due primarily to individual investors as the newest “meme stock,” but it is unclear how high the share price will go.

Microsoft and Meta along with 35 other tech-industry organizations announced they are establishing a consortium focused on establishing metaverse interoperability standards. Notably, the consortium does not include Google parent company Alphabet or Apple even as they are expected to be dominant forces in the Metaverse when their mixed reality headsets are introduced. Executives involved with the consortium did not address how Apple’s apparent absence would affect the coalition’s goals but the group said it will focus on topics ranging from augmented reality to online economies.

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