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High interest rates ‘still hang over consumers’ heads,' ToolsGroup CEO says

ToolsGroup CEO Inna Kuznetsova discusses the outlook for retailers, elevated inventories, and how machine learning and AI can help the retail sector adjust to a changing environment.

Video Transcript

- All right. Well, Black Friday and Cyber Monday has come and gone. But opening up the holiday buying season with stronger than expected results, according to data from Adobe Analytics. But while retailers are banking on a boost from the holidays, according to predictions from the NRF, can they keep up with rising demand? For more, let's bring in Inna Kuznetsova, ToolsGroup's CEO. Thank you so much for joining us, Inna. So first of all, as we saw there, Cyber Monday even outpacing what we saw with Black Friday. What's your big takeaway from this holiday shopping season?

INNA KUZNETSOVA: Rachel, thank you for inviting me. We indeed saw strong sales during the Cyber Monday and Black Friday, especially in such categories as electronics and home goods. And the issue everyone discussed today is, does retail face a revenue problem? And what we see at the same time as the strong sales is retail does not have a revenue problem currently, but retail has the inventory problem and profitability problem.

Over the last couple of years, the massive disruptions in shipping led to huge, huge increases in inventory. And in many cases, that inventory was the wrong inventory. The consumer demand changes very, very fast driven by inflation, and as a result, we see retailers sometimes stocking one wrong products, and then having to discount them very, very highly especially during the sales events.

- So to what extent has that inventory cleared as a result of the discounts that we saw over the weekend? I mean, I would tell you personally, it didn't seem like we saw the steep discounts that we typically would on a Black Friday weekend given that some of the sales started so early.

INNA KUZNETSOVA: We indeed saw a lot of retailers starting the discount period very early, as early as October, well before Thanksgiving, in an attempt to clear the inventory as well as ease the pressure on consumers. The high interest rates still hang over consumer's head. We can still expect the changes in demand happening very, very fast based on the credit card debt. And consumers are in a rush to buy at high discounts, but so are retailers trying to clean up inventory. Just an example, Levi's showed almost 7% growth in revenue in the third quarter, and yet they also showed 43% growth in inventory, which led to $20 million profitability problem.

So we do see the need for the retailers to start planning in a much more careful way of what to stock up. And in many cases, we saw the goods that had problems with availability during the previous cycle, such as electronics, being over ordered, and now trying retailers are trying to get them out.

- So Inna, let's talk solutions then because obviously some retailers are managing better than others. And you talk about perhaps AI planning being the way. But what are some of the pros and cons of that?

INNA KUZNETSOVA: I think the major advantage of artificial intelligence planning is that it takes new risks into account daily. We see risks changes every day, a new lockdowns in China, changes in shipping rates up and down, mostly down for the last month. But a potential railway strike or another lockdown in China can throw things and havoc. Changes in consumer demand with people staying at home more, even though many are returning to the office changing, their consumption habits. Inflation really pressing the consumer's buying behavior towards cheaper products.

All those risks exist, and they are exacerbated by sourcing risks, created by geopolitical environments in Ukraine and Thailand. So every day there is a change in the market environment. And artificial intelligence catches those changes every day, captures things that may not be even visible to a human. Of course, the downside is you have to use the proven models because something very new and untested may only exacerbate the problem that the company has within inventory. So it's very important to look at the experience of the solution providers delivering such software and the business results in the similar subsegments and similar industries.

- You're certainly only as strong as the weakest link in your supply chain. A big thank you, Inna Kuznetsova, ToolsGroup CEO. Thank you for joining us this morning.