Conference Insights: Thoughts from our annual Consumer Conference – Paris
The desk believes that the insights gathered from Deutsche Bank's Consumer Conference indicate shifts in competitiveness primarily driven by advancements in AI, which could redefine market dynamics within the consumer staples sector. Per the full note, the discussions highlighted how smaller brands could gain considerable ground at the expense of mid-tier competitors due to lowered barriers in marketing and consumer engagement. This evolution reflects a broader trend where technological enablers are reshaping industry landscapes, impacting trading strategies and currency risk profiles. Key market participants should consider these insights when strategizing positioning ahead of potential shifts in consumer demand and brand loyalty dynamics.
What the desk is arguing
The desk frames this observation around the notion that AI's impact on the consumer sector will reshape traditional brand hierarchies. The conversation among analysts from Deutsche Bank, including those from the food and beverage sectors, emphasizes that AI is facilitating the rise of smaller brands, enabling them to penetrate markets previously dominated by larger players.
Specifically, it was noted that the pressure on middling brands may result in significant market share losses, an outcome that could revolve around changing consumer preferences driven by enhanced digital engagement capabilities. As a reference, the conference featured over 100 corporate participants, indicating considerable interest surrounding these themes.
How other firms see it
Firms that align with this view include jpmorgan, which emphasizes the growth potential of smaller brands in light of technological advancements. Conversely, bofa may take a more cautious stance, focused on the traditional resilience of established brands amidst these transitions.
These insights also resonate within the larger frameworks of consumer goods currencies and may influence traders monitoring EUR/USD and GBP/USD pairs due to their comparative exposure to European consumer dynamics and trade relations.
Traders should closely monitor shifts in consumer dynamics, particularly in the context of the EUR/USD pair, as these trends could serve as leading indicators of broader economic shifts. The potential growth of smaller brands could alter perceptions of traditional powerhouse firms, adjusting currency expectations accordingly.
Risks to this view
Downside risks include a rapid reversal in consumer preferences, which could pivot back towards established brands if recessionary pressures heighten. Additionally, any significant regulatory changes, particularly around AI use in marketing, could hamper the sustainability of growth observed in smaller brands.
Podzept, the podcast from Deutsche Bank Research, with interviews on current economic and financial topics. Listen as economists and analysts from Deutsche Bank present their views. So welcome to the latest in Deutsche Bank's Podzept series.
I'm Jonathan Jeyarajan, also known as JJ, the head of European Equity Product at Deutsche Bank. Last week we held our annual landmark conference in Paris. It was the 22nd annual Consumer Staples Retail and Luxury Conference, with over 100 companies and 500 institutional clients in attendance.
As we digest the wealth of information that came out of it, I'm delighted to be joined by some of our key analysts in Europe and the US to distill this feedback into some of the most important takeaways. AI, tariffs, China, long-term demand trends are amongst the topics. So let's kick off, if we can, first with Tom Sykes, who runs the Food Producers and HPC team here in Europe, and Mitch Collett, who runs Beverages in Europe.
Now, Mitch, you hosted a very interesting AI panel at the conference, and it's very clear that AI is beginning to pervade every aspect of the industry, in particular changing the dynamics of competitiveness in the market around middling brands, etc. Can you give us some up-to-date thoughts on the feedback on that area? Yeah, of course.
It was a fascinating session. I think it's not an exaggeration to say that AI is likely to impact every aspect of an FMCG business model, and on the panel, one of the views that was expressed was that smaller brands will probably do very well because the barriers to entry are almost being completely eroded, particularly in areas like marketing. Larger brands will probably still be pretty well off.
They'll still probably be the big brands within any segment, but the parts of the market that will be squeezed will be those middling brands, where the smaller brands will take share, the big brands won't give up, and therefore the middling brands will ultimately be the losers. And that's something that companies are going to have to think proactively about within their portfolios going forward. Yeah, absolutely.
I think it really does lead to a drive to make sure that you have the best brands in your space, and I think companies will actively look to sell off or get rid of some of the tail brands that perhaps don't set up as well to do as well in an AI world. And when we talk about brand strength, AI robots has been a topic that's been discussed, maybe doing our buying for us. Are brands going to become less important?
What are the thoughts around that? I think brands will always matter, but in a world where my AI shopping robot contacts a retailer's robot and does my shopping for me, I think the way those brands interact will be very different. And perhaps it's possible that there's a world where functional and emotional brands have very different outlooks.
So if there's a product where it's all about the function, my AI robot can tell me that the product it's selected for me is every bit as good as the one that I might have chosen at a higher price point. When it comes to a product where there's an emotional benefit, I don't think the robot can really tell me which brand of scotch I have to prefer, which brand of cola I want to drink. And ultimately, I think, therefore, the more emotional types of products, the more emotional categories probably won't be impacted as much as the more functional products within consumer staples.
Additional barrier of protection. And A&P spend also in this space, are companies looking to see that decline with the advent of AI? Yeah, I think one of the most obvious areas where AI can make companies more efficient is in A&P.
Artificial intelligence can create media very cost effectively, very quickly. And one of the companies that presented said it was hard to tell the difference between the human created product and the AI created media. In addition, you can use AI to tailor that media to specific markets at a fraction of the cost and far quicker.
However, staples investors will always be nervous about companies spending less on A&P, primarily because if there's any harm done by spending less, it's normally not seen in year one, two or three, and it's seen somewhere further down the track. So companies will have to be very careful about how they leverage that AI benefit, whether it's used to reduce investment, or to invest more, but at better rates of return. Very clear, Mitch.
Thank you. Tom, if I can turn to you, tariff uncertainty, Chinese uncertainty, it's definitely been a feature, but most companies seemed quite confident about the second half of this year being stronger than the first half. What are your thoughts around what's driving that?
Yeah, thanks, JJ. Yes, you're right, there was an increased level of uncertainty around the pace of progression in China and tariffs, and perhaps though a little bit more around US demand volatility. Certainly that has been more pronounced since the tariff announcements.
Companies wary of building too much inventory, so sell-in trends perhaps a bit weaker than sell-out. We've been in a low volume growth period for some time now. There's obviously been some COVID normalization.
There's also macro headwinds, so innovation remains key to driving volumes. Nearly all the companies we spoke to spoke of a recovery in H2 and a higher level of innovation in H2 versus H1. We believe a lot of this is actually timed to coincide with the annualization of destocking by retailers last year.
So it almost forces some restocking of the new variants, and that's part of the H2 improvement. Given the scale of the combined innovation across the sector, it's unlikely that everyone will win if we remain in a low volume demand world. Key is going to be whether you have the funds to support your products, and key to that is going to be productivity.
You need to generate funds to support your brand launches without hitting your margin. Those companies that generate high or above average productivity are likely to be the relative gainers in what we expect to continue to be a relatively low growth volume environment. When you think about the demand patterns, there seems to be quite a divergence between the high-income households and the lower-income households.
What was the feedback around that? You're right. Several companies mentioned the bifurcation between high-income and, I would add to that, asset-heavy and low-income and asset-light consumers.
In the US, for example, wages to GDP are down to where we were in 2008, whereas the stock market to GDP is at all-time highs. If you own assets, you can continue your expenditure patterns and premiumise. If your expenditure is just based on income growth, it's much harder for you to keep up with the cost of living.
That almost certainly means that premiumisation will be lower for large parts of the economy. The mixed benefit of premiumisation was felt by our companies at the top line and also benefited the operating margin. When we look at the sales to EBIT algorithms across staples, they do feel more challenged with this bifurcation of the consumer.
This makes it even more important that you generate this productivity to be able to reinvest because relying on the historic levels of premiumisation is very unlikely to be as successful as it was historically going forward. Yes, it's a very important and very interesting trend. Thanks, Tom.
Mitch, if I can come back to you and focus on your beverages coverage. There's definitely been a trend in place recently of soft drinks doing better than in particular spirits. That trend seems well-entrenched based on what we've heard at the conference.
Yes, that's true, JJ. Soft drinks appear to have weathered the recent softness in consumer demand better than other aspects of beverages. I would say beer has weathered it better than spirits and spirits has been the area where there has been the largest impact of consumers having pressure on spending.
It's also worth bearing in mind that spirits had a very strong period during and immediately after the pandemic and to some extent what we're seeing now is a normalisation of that excess growth. There's also a heavy debate within the sector about whether some of that softness is driven by structural challenges. At this stage, I'd say the evidence isn't clear in either direction, but if the current softness for spirits continues, I think it's going to look increasingly likely that there is a structural element to it as well as normalisation and cyclicality.
Well, Tom, Mitch, there's a lot we could dive further into, but a lot of ground we still have to cover. So thank you both for joining us today. I'm delighted to have Steve Powers, our head of US Consumer Staples, joining us as well who made the trek over to Paris.
And Steve, thank you very much for joining us as well today. There appear to be some clear messages around the US and China remaining tough with some more positive signs in Europe. What was your takeaway?
Yeah, thanks, Jonathan. I think that's right. We definitely heard evidence of pockets of improvement in both the US and China, but management teams overall were, I think, rightly tentative to extrapolate too much strength into the future in the context of significant uncertainty.
In the US, it should be noted, I think, also that while consumption trends have improved to a degree since March and April, and we heard management teams validate that, most companies still noted de-stocking headwinds as retailers tightly manage trade inventories and as consumption continues to shift towards retailers such as Costco, Walmart, and Amazon, which tend to carry fewer days on hand to begin with. So that's a challenge in addition to soft consumption. In Europe, there was a better sense of stronger trends continuing.
But even there, I'd note that discussion was somewhat guarded, centering more on whether or not such trends could continue or instead fade in sympathy with the US. So I think very few companies expected further improvement in Europe, and some had already cited degrees of deceleration. So when you think about then, what's the outlook for pricing?
Is that likewise going to be similarly weak, do you think, through 2025, 2026? Yeah. So, you know, in the context of those difficult demand realities, we titled our takeaway note from the conference muddling through, which I think generally describes the situation.
Demand levels are overall challenged, not just in the markets we've spoken about, but more broadly around the globe as well. And consumers are value-seeking, which makes price-taking difficult. I think we will see some companies be forced to push through price, especially in response to robust inflation.
You know, if we think about coffee or cocoa or tariffs. But I think the consumer backdrop will keep broader-based pricing more limited. It will require significantly differentiated innovation to facilitate pricing that's not clearly cost-justified.
And actually, it leads me into my next question around innovation, because the European companies seemed more optimistic on the second half as the first half, and innovation was certainly part of that trend. What did you see out of the US peer group? Yeah, companies are certainly leaning into innovation as a form of self-help.
We had multiple management teams talk about what they feel are very robust innovation pipelines heading into the second half of 2025 and looking out to 2026. And I think that will be important, not only to justify difficult-to-achieve pricing, as we spoke about, but to differentiate versus, in many cases, more resurgent private label and or smaller brands, which are clearly vibrant and back on shelf following a few years of supply disruption post-COVID. So the good news is that companies were optimistic and confident on the topic of innovation, but I think the need is arguably higher than typical.
So we'll see how that plays out as the year progresses. You mentioned self-help. There was clearly a trend towards self-help to drive the business in the current circumstances.
How do you see M&A in the sector evolving, given what you've heard? Yeah, very true. Self-help was a big theme at the conference, both in terms of M&A and also in terms of companies more aggressively pushing productivity measures to fund reinvestments and demand building organically.
On the M&A front, I would say that most companies were more focused on divesting assets that were deemed non-essential in order to enable more focus at the strategic core. But we also did see and hear aspects of portfolio reshaping from an acquisition standpoint. I think when faced with fundamental challenges, looking externally to supplement organic efforts is a clear lever that management teams have at their disposal, and we did hear some discussion of that at the conference.
I think as much as M&A is a building theme in the background, the louder message was companies are more focused on strengthening their core. As I say, accelerating productivity to fund reinvestments at that core and then, if anything, prioritizing divestitures to eliminate distraction. Steve, you're a veteran of many years in the industry and at the conference.
Was there anything that surprised you out of the feedback that came through this year? I think the biggest surprise was how frank and grounded the conversation was. The backdrop, as we've talked about it, isn't a happy or optimistic one.
But we heard a lot of real talk. We didn't hear a lot of hope and blind optimism. We heard companies very grounded in reality, accepting of the situation, and determined to act to, as one company put it, create their own tailwinds.
So I thought it was a very substantive conversation all week, and I thought management teams were acting and communicating with a degree of realism that I think was both refreshing and will be required to the extent that they're going to be successful in this difficult environment. Steve, we could talk for hours on many of the other takeaways, but time doesn't go otherwise. But thank you very much for joining us.
I'm sure we'll come back and revisit these topics again soon. So let's change track and focus on food ingredients. I'm delighted to be joined by Virginie Boucher-Ferte, who heads up our food ingredients team here in Europe.
And Virginie, in contrast to other sectors like staples retail and luxury, demand for food ingredients, fine fragrances seemed robust, tariffs not really an issue, profitability looked good. What were your key thoughts? Yes, absolutely.
Thanks for this info, JJ. That's a good summary. Of course, the sector is not immune to a slowdown in end markets, and we've already seen some relative softness in North America, but it is still a better position than other consumer sectors.
I'd like to come back to your first point, that demand for food and beauty ingredients remains robust. It can sound a bit counterintuitive, as we've been hearing the listed staples, beauty and luxury companies complaining about subdued volumes for some time, and these are, of course, customers of ingredients companies. However, it's key to keep in mind that these large customers no longer represent a significant portion of ingredient sales.
Over the past 10 years, we have seen local and regional players and new brands emerging and becoming much larger, growing twice to three times as fast as the global accounts. These local and regional customers, as we call them, now represent over half of ingredient companies' sales. They are much more innovative, less risk-averse than the big global accounts, and they tend to be more in tune with local consumers' aspirations and purchasing power.
Private label is included in this category, and in a soft macro, when consumers tend to trade down, it will obviously tend to gain market share. And the beauty of ingredient companies, no pun intended, is that they are fairly agnostic as to whether they sell to a global brand or a local and regional or even private label customer, as they make broadly similar margins across customer categories. Another key point is that specialty ingredients are enablers to make healthier and more sustainable products.
For example, nowadays, food and beverage companies want to remove sugar, salt, fats, without compromising the taste and the consumer experience. So, they have to be replaced by specialty ingredients those companies make, such as flavours, texturants. In the US, since the appointment of RFK, food companies might be forced to remove chemical additives from their recipes.
Again, here, ingredients companies are well-positioned, as they offer natural alternatives, including biotechnology solutions, which are as close to nature as you can be. Formal regulations have yet to be put in place, but this transformation is already happening, as very much driven by the end consumer. There has been another tailwind for the sector, which you mentioned, which is fine fragrances going to perfumes.
It's been growing double-digit for the past three years, supported by structural trends, such as new demographics with very young customers, new distribution channels, new ways of advertising, like social media, new regions, Middle East, China, new formats, as well as products. It's inevitable that growth will slow at some point, but it remains quite strong, as we speak, and should remain stronger than seen historically. Those very robust volume trends translate into fairly strong profitability, obviously, as there has also been a lot of self-help in the sector.
There's been a lot of M&A, new management teams as well, so a lot of cascading and synergy programs everywhere. The direct impact from tariffs is very limited, as those companies have a local for local footprint, selling what they produce. Some imported raw materials are impacted by inflation, but companies have implemented surcharges, so it's a straight pass-through with no impact on profits.
So, given the profitability improvements over the past 18 months, companies have been deleveraging, and we expect M&A to be higher on the agenda, although we think the focus is more likely to be on both on M&A, as there is limited room left for large-scale consolidation. We also expect many companies to step up cash return to shareholders through buybacks sooner or later. I'll leave it here and hope it answers your questions.
Yeah, it does, Virginie. It sounds to me like, given the trends for moving to more natural substances, that focus on innovation is going to be a strong moat for this industry compared to other parts of the consumer staples landscape. Is that a fair assessment?
Yes, absolutely. Those companies spend, on average, 8% of sales in R&D, some of them up to 11% of sales, and that's a key growth driver and a key barrier to entry as well. So, there have been concerns about AI potentially allowing new entrants in the space.
AI will indeed help speed up product development, reduce costs as well, but it will not replace R&D, which is really the key barrier to entry and volume growth driver. Yes, and I touched on earlier that in staples, actually, AI could be more of a disruptor for middling brands, but that doesn't really apply here. Virginie, thank you very much for joining us.
Let's turn now, if we can, to the pan-European retail and luxury sectors in Europe, and I have Adam Cochrane and Alison Lyko who have joined me here. Adam, if we can start with you, tariffs was less of a talking point than perhaps many expected, but Chinese dumping risks have been a cause for concern. We haven't necessarily seen evidence for that, but falling factory gate prices in China, is that a precursor to dumping or is that an opportunity for the sector?
Yes, I think the knock-on impact from tariffs really relates to lower consumption as well as Chinese companies finding the European market either more attractive or more profitable or both to offer their products. The companies pretty much all said they'd seen no evidence of this so far, but did not rule out that it might come still in the future. There is hope that EU and UK governments may take some action to help level the playing field, particularly with regards to taxation or potentially customs handling charges.
Thinking about falling factory gate prices in China, however, does offer a material opportunity given the manufacturers are seeing less demand from the US. For longer lead time products, we heard that 2% to 4% price reductions are already being offered, which comes on top of the weaker US dollar. Therefore, we expect further discounts as time goes on.
This does provide a potential material gross margin boon for European retailers. Companies were quite open about talking around the longer term view, the three-year view, etc. What were some of the key takeaways?
I think there's a couple of key points to look at on a three-year view. First of all, the three-year view came about because there's so much uncertainty, I would say, on the one-year view that they'd prefer to take a slightly longer term picture. But firstly, a clear increased focus on return on capital employed.
So this is from both a sales growth and margin perspective as well as looking at the capital employed. Underperforming business areas are being addressed, inventory levels being more tightly managed. I think with the increase in OPEX, especially for the UK companies, this has been a tougher year for many, but it's being proactively managed.
The capital that's being freed up is largely being returned to investors, although in a few instances, organic and inorganic growth opportunities have been identified. I'd say secondly, the short-term volatility in trading is not moving companies away from the structural opportunities for growth. There are examples of CAPEX being curtailed in the short term, but generally, larger companies are continuing to invest in the growth areas.
As an example, some healthy gross margin tailwinds we discussed earlier are really helping to limit price increases, allowing reinvestment into the consumer offer, whilst also helping to mitigate some of these OPEX pressures. And I think thirdly, retailers remain laser-focused on making sure they offer a differentiated proposition to their customers. This is focusing on areas to make sure that they can increase market share gains, irrespective of the weakness in the market.
As some examples, among clothing retailers, we're hearing about investment into quality of stores, online range, online capabilities, or at home improvement, focusing more heavily on the trade opportunity. Alison, if I can turn to you, maybe unusually for recent times, the UK seems to be a bright spot versus Europe and the US. What did you learn from the conference?
Yes, I'd agree. When we look globally, it feels like the UK consumer is actually relatively well-positioned, and we've had decent spending momentum coming through from consumers so far in 2025. Management teams at the conference did emphasize the benefit of the weather.
We've had one of the sunniest springs on record this year over in the UK, so they were clear that they aren't really extrapolating that run rate or really lifting expectations for the year at this stage. When we look elsewhere in the US, we took away a lot of uncertainty from management teams as to how that US consumer would react to potential widespread price rises coming through. That's expected more in the second half of this year, and visibility there is pretty low in terms of consumer behavior.
And then Europe feels like a bit more of a mixed picture. So, there are certainly countries where spending momentum feels good, Spain and Italy, for example, but commentary on France and Germany was much more muted with a number of companies talking to the increasing caution they've seen there from consumers. So, overall, the UK does feel relatively well-positioned.
Overall, household savings are in a good place, interest rates are coming down, and consumer confidence in May has started to tick back up again. That's very clear. Adam, if I can just come back to you, because you cover the luxury space as well, and obviously very different drivers there, some weakness particularly in the more accessible luxury.
What do people need to know and understand about this space? I think the sentiment amongst the luxury companies was definitely at the weaker end of the messaging from the companies, really driven by no improvement in the mainland Chinese consumer, a decline in Chinese tourist spending in both Europe and Japan. And a mixed trajectory for the US consumer, particularly with the strong post-Trump election bounce that we saw fading quite quickly heading into March and April after the tariff discussions and announcements became more obvious.
I think broadly, the point on accessible luxury being weak is still valid. That's been ongoing for a while. The VIP customer base has actually been much more robust.
I think the challenge on accessible luxury possibly relates to a combination of a reaction to price increases, uncertainty in their outlook, or potentially a change in spending preference away from luxury products. It's still viewed largely as a cyclical rather than a structural change across the industry. I think the final piece I'd say is, despite the relative weakness in sales, luxury companies are still pushing through a low single-digit price increase.
Globally, with a further low single-digit in the US to help offset some of those tariff risks. So looking forward, the point about cyclicality, a lot of the companies are still viewing 2Q as the trough with its 2H sales recovery, maybe not to historic levels, but certainly up from where we've seen in the first half. And on the topic of price rises, Alison, sporting goods looks like there's some flexibility to drive those prices up as well.
Yeah, sporting goods we think may have room for some pricing. We've seen Nike really lead the charge on that front and other brands are expected to follow suit in the US. So overall, those with good brand or product heat are likely to see relatively low elasticity.
Companies we were speaking to were relatively confident that an extra $5 or $10 on a pair of trainers is not going to stop the customer that really wants that particular trainer. And this was very much a theme that extended beyond sporting goods. So those with good product heat, good brand momentum.
But the unknown we took from management teams was really what to expect from that consumer if their whole basket goes up by kind of $5 to $10 everywhere. Where do they start to change their behaviour? And there it very much felt like management had low visibility and were feeling pretty uncertain as we look into the kind of the balance of the year ahead in the US market.
That's very clear. Adam, Alison, thank you both for joining us today. Let's switch now to tobacco.
Damian McNeill heads our tobacco franchise in Europe. Welcome, Damian. There's been considerable excitement at the conference around some of the new products in this space, nicotine pouches, heated tobacco.
What was your takeaway on these innovations? Yeah, thanks, JJ. Yeah, there's been quite a lot of excitement about NGPs in general, but specifically pouches.
As you know, they are the lowest risk of all NGP products, which represents a very big global opportunity for the players in the space. But specifically, company-wise, you've got PMI seeing increased availability of their US leading brand, Zyn, and also BAT talking about the strength of their Velo franchise outside of the US, but also increasingly talking about the opportunity in the US as well. On the heated tobacco side, it's a category that's been dominated by the global leader, PMI's ICOS.
A number of the companies have indicated that they feel that they have, for the first time, got a product that can match ICOS's consumer experience, and that, given the fact of about a billion smokers still on the planet, that represents a very big opportunity to switch those smokers onto lower risk products like heated tobacco. And cautious optimism on US regulation as well. What's driving the thought process?
Yeah, I mean, I think since the Trump administration came in earlier this year, there's been a lot of questions about whether the changes under RFK Jr at the FDA would lead to a material change in stance around tobacco and nicotine legislation in the US. So there has been some development. We've got a new head of the CTP in the US.
And broadly, people are sort of indicating that the conversations that they're having are broadly positive, but there hasn't been any material change in the ground in terms of the way things are being enforced. I think, given the illicit problem that the US has, approximately sort of a 6 billion illicit bait revenue number in the US at the minute, that would indicate a pretty significant switch back to legitimate players like BAT and Imperial, if we were to see an improvement there. And pricing power outside the US also looking robust?
Yeah, I mean, I think this is one of the things that sort of tobacco is known for, but often people forget about the resilience of the tobacco model is that they continue to be able to price over volume declines in the vast majority of markets. And so given that that continues to hold true, I think the outlook for resilient combustibles growth remains. Plus, we're now seeing sort of growth coming through from the NGP products, which gives us confidence that the outlook for the tobacco sector in general is pretty positive.
That's very clear, Damian. Thank you for joining us. So let's move across now to Christina Kassai, who runs the US broad lines and food retailers sector.
Welcome, Christina. Thank you also for joining us. Now, interestingly, your companies appear confident in pushing through price rises in the second half, despite a lack of visibility on consumer demand.
Is that surprising? Where do you think that trend is going to take us? Thank you for having me.
It's a little bit surprising to us in terms of the overall level of confidence that much of the tariff impact can be mitigated. I think we're coming off of a period of rapid inflation that we saw coming out of COVID. The US consumer in particular is still absorbing 30 percent higher overall cost in grocery.
Overall, the cost of living and services components have been very inflationary. We're coming out of a period where consumers are very fatigued with price increases, but I think that's also another reason that we do see some level of caution in the way that companies have guided for the back half of the year. In particular, we're still coming out of a relatively resilient consumer.
What we had seen is a very nice acceleration in trend post a soft February, where we had seen a lot of inclement weather. March had improved. April exit rate was particularly good.
The companies that we had attend our consumer conference in particular sounded really great also on May to date trends so far. We haven't seen any pushback from the US consumer, although admittedly we haven't seen much price changes as of yet. Some of the companies early on had talked about it, including Walmart, that there will be price adjustments that they're going to have to make. 145% tariff that was in place initially for a couple of weeks certainly changes the equation, but then we got dropped down to about 30%.
So that certainly is giving a lot of extra room for retailers to navigate this environment. And it particularly came at a good time because in the month of May, going into June is when a lot of retailers making key holiday inventory decisions, what to bring in from overseas, and particularly for the holiday, like toys are almost all predominantly manufactured in China. So we do expect to start to see price increases in June and July.
That seems to be general consensus across companies as well. And some on the footwear side, we had already been seeing it. The very first ones that we started to track were Skechers, where we saw late March into the first couple of weeks of April.
Some of the key items that Skechers sells in USDTC have started to see price increases, mid to high single digit price increases. We had actually seen Nike follow suit at the very end of May. And that was something that was communicated to their wholesale partners that they're taking prices higher starting in June.
I think a lot of others are going to be taking suit later on in the month of June and into July. And that's really a function of how frequently these retailers turn inventories. Some of them turn inventories every five to six months.
So that's really the timeline that puts us to when these tariff impacted inventories are going to start to be sold to the US consumer. So we're a little bit in a wait and see mode in terms of which are the retailers that actually can take prices, which are the ones that are going to see greater unit elasticity and unit degradation. The good news is that most of the companies have guided sufficiently conservatively for the back half of the year.
And so far, just based on macro data, US employment, the fact that US CPI is decelerating could probably indicate that the consumer could be in maybe a better position to actually take these and absorb these higher prices in the back half of the year. And you touched on it there around the tariff impact and the supply chain. And there doesn't seem to have been a huge amount of disruption from what the companies were saying.
Do you think companies are expecting to see that disruption come through, or do we think we're past the worst point on that risk profile? I think for now we are past the worst of it. The issue was going to be if 145% China tariffs stay in place for much longer.
What we had seen is that during that roughly three week time period, a lot of retailers have paused their inventory shipments. And we saw some level of disruption in the overall spot market and the number of vessels that were sitting empty or were just not leaving the ports of China. Now, when that was rolled back to 30%, I think it created a frenzy.
And now we're actually hearing from many across the retail landscape. Bipolar was the most recent one that reported last week and told us that they absolutely paused for about three weeks. But as soon as the rate got dropped, now they're actually in chasing mode.
So that could potentially create a little bit of disruption in the back half of the year, particularly as we think about the rush for holiday orders, just because we were on a pause for a couple of weeks. So far, we haven't really seen any disruption, any meaningful out of pockets in particular. Now, part of it is also that inventories are turned about every five to six months.
You know, some dollar stores turn it every three months, three to four months. But on average, a lot of brands are looking at twice a year of inventory turnover. So we've had a lot of already inventory sitting in the country.
So there wasn't really as much of a disruption. So where we could see some level of disruption is the holiday rush period when we're thinking about post back to school, because generally back to school, we get into that selling period has been a historical sort of precursor to how good holiday is going to be. So we're coming.
We're going to be going into that period now post summer. So back to school really starts in the month of July and August and then wrap through the end of August into early September. And if that period needs to be stronger than expected, then we can see a lot of retailers then try to chase inventories for holiday.
And that could create a level of crunch in the overall spot market rate where we could see potentially some elevated market rates that could create a little bit of disruption. And that's where we would expect the big, obviously, to get preferential treatment. And then, therefore, those would be the best position to get the inventory into the country.
And we have a little bit of time maybe just to touch on one more topic, because self-help was a recurring theme, obviously, in difficult times, the way to be defensive in your peer. Now, that certainly came through in a number of number of speeches, I think. Yes, and here, again, is where size and scale really makes a difference.
Retailers like Walmart and Costco and Target that have a lot more leverage over their vendors that are top importers into the country have more leverage over some of the smaller players. But even the smaller players, the way that they're able to potentially move some of their sourcing capabilities, certainly these things cannot happen overnight. But luckily, the China tariffs have been well telegraphed for well over a year at this point with Trump on the campaign trail.
So a lot of retailers have been making plan B, if you will, in terms of how they're going to be approaching this situation. And a lot of retailers and brands have also been diversifying away from China since the first round of China tariffs. So when we look at companies like Ralph Lauren, no single country represents more than 20% of their sourcing.
And the way that they have built up their overall supply chain is that every single key product that they sell can be manufactured in two countries. So if they need to shift away from one, they can shift to the other. And then that really provides a level of leeway in terms of how to really manage this type of a situation.
So again, it comes down to what kind of vendor relationships that they have, and especially when they're working with OEMs, whether it's in the apparel or on the footwear side, when we're also dealing with a little bit higher margins, vendors potentially have also some more leeway to essentially absorb some of these incremental costs. But ultimately, it also comes down to the retailers' individual supply chain efficiencies, where they're able to find unlocks. And that's where we have seen some upside surprise in terms of how quickly they've been able to navigate to essentially eliminate the overall impact, which it's still showing up in the P&L in the back half of the year, but it's just not as meaningful and not as bad as what we had initially anticipated it to be.
Christina, there are a number of topics we could spend considerable time exploring, but we do have, unfortunately, a time limit on this. But thank you very much for joining us. We'll have to wrap the podcast here.
But thanks for all of you who have tuned in and got this far. Our analysts obviously stand ready to help you and speak to you on any of the issues. If you've got any topics you'd like us to explore as part of the series, please do let us know.
And in the meanwhile, I'm Jonathan J. Rajan. This has been Podsept.
Thank you very much for tuning in. Podsept, the podcast from Deutsche Bank Research. This podcast has been produced by Deutsche Bank and may contain research as defined in Method 2.
The information discussed is believed to be reliable and has been obtained from public sources believed to be reliable, although Deutsche Bank makes no representation as to its accuracy or completeness. Opinions, estimates and projections discussed constitute the current judgment of the speaker at the time of recording. They do not necessarily reflect the opinions of Deutsche Bank and are subject to change without notice.
For further important information, please visit research.db.com.