8 Reasons Retailers Might Struggle in 2022

The past couple of years have been brutal for retailers, and while bankruptcy levels dropped in 2021 compared to 2020, retailers could still have a tough year ahead. Here's why 2022 could be a turbulent one in the retail space.

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It's common for consumers to return goods after the holiday shopping rush. But this year, due to higher transportation and labor costs, those returns could cost retailers 59% more than what they cost the previous post-holiday season. That's hardly a great way to set the stage for success.

Though some of the supply chain issues that retailers grappled with last year have eased up a bit, the problem hasn't been fully resolved. That means retailers could still be in for months of limited inventory and higher costs to procure products, thereby cutting into their revenue.

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The omicron wave has wreaked havoc across the country, and it's already forced businesses to rethink the way they operate and prompted some schools to revert to virtual learning. If the surge persists, consumers might choose to stay away from stores due to health-related concerns.

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Consumers can't easily shop if they're ill. If the omicron wave doesn't slow down, it could result in a notable downtick in retail purchases -- both online and in stores.

Inflation was up 7% in December, and some economists don't think it has even peaked yet. With the general cost of living being so high, consumers may have no choice but to cut back on non-essential spending. That could leave retailers with lower sales numbers than anticipated.

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The Federal Reserve has indicated that it will raise rates this year. And though it doesn't set consumer interest rates, we're likely to see a trickle-down effect that results in higher interest rates for credit cardholders. That could, in turn, prompt consumers to be more judicious in their spending -- and cut back.

ALSO READ: The Fed Has Signaled Rate Hikes for 2022. Here's How That Could Impact Consumers

Big-box chains have already taken a lot of business away from smaller retailers. And since those chains have more resources at their disposal to procure items at a discount, smaller retailers might lose out even more in the coming year as consumers are forced to make hard choices about the way they spend.

We're still in the midst of the Great Resignation, and that doesn't bode well for an industry that's known for tough working conditions and subpar wages. Retailers might struggle this year to meet their staffing needs. And if they can't hire enough workers, they can't succeed.

Without a crystal ball, it's hard to predict exactly how retailers will fare in the coming year. But it's clear that retailers will face their share of challenges during these uncertain times. Investors in mall and retail REITs will need to brace for some turbulence -- and hope they're pleasantly surprised by the time 2022 comes to an end.

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