Centerfin Collective Weekly

Weekly Update May 19, 2023

Let's talk about shrinkage, Two-thirds expect recession, US and allies to send F-16s to Ukraine

Let's talk about shrinkage

This week many of the big box retailers reported earnings. Notably, Target reported that they expect a $1.3BN hit to their bottom line this year from “shrink.” This is $500 MM more than they experienced last year. They attributed this number to organized retail theft.

  • “Shrink” refers to inventory shrink or the loss of inventory due to theft by shoplifters and employees
  • This has been a growing problem, rising 50% in 2022 over prior year levels, according to the National Retail Federation
  • The ability to sell stolen items online, combined with generally more lax prosecution standards for small theft, has opened the door for organized crime in the sector
  • This comes at a time when many retailers are bracing for a potentially strained consumer

Two-thirds expect a recession

In a new Nationwide 2023 Economic Impact survey released this week, 68% of Americans expect a recession within 6 months. 80% of those expect it to be severe, with 62% expecting it to be as bad or worse than the financial crisis of 07-09. This is notable because consumers' expectations affect their decision-making in spending, saving, investing, etc.

  • When people are worried hard times are coming, they generally curtail spending, with discretionary spending being first
  • This can mean business slowing for hotels, airlines, and restaurants
  • To date, we have yet to really see the consumer slow down, so this is something to watch over the coming quarters

US and allies to send F-16s to Ukraine

The US indicated that they are now open to providing Ukraine with F-16s to help in their defense against Russia. Without specifying when, how many, and where they will actually come from, this contrasts the administration’s prior stance. Russia has previously stated it would view this as an act of war.

  • Ukraine cannot continue to defend itself without the support of its allies
  • The US and other allies have thus far provided weapons and money but have stopped short of supplying fighter jets like the F-16
  • Russia has previously said they would consider this an act of war
  • This new development raises the geopolitical risk if Russia were to react

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