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Retailers may see more red after Black Friday as consumers say they plan to pull back on spending – acting as if the US were already in a recession

A new survey suggests three ways consumers are behaving like the US economy is in crisis, which may become a self-fulfilling prophecy.

Black Friday is one of the busiest shopping days of the year. AP Photo/Bebeto Matthews

Retailers are gearing up for another blockbuster holiday shopping season, but consumers burned by the highest inflation in a generation may have other ideas.

Industry groups are predicting another record year of retail sales, with the National Retail Federation forecasting a jump of 6% to 8% over the US$890 billion consumers spent online and in stores in November and December of 2021.

But Jeff Bezos, founder and chairman of the biggest retailer of them all, seems to be anticipating a much less festive holiday for businesses. In November 2022, Amazon said it is laying off 10,000 workers, one of several big companies announcing job cuts recently. Bezos even cautioned consumers to hold off on big purchases like cars, televisions and appliances to save in case of a recession in 2023.

Results from our new survey suggest consumers appear to be already taking Bezos’ advice, as a combination of soaring consumer prices, rising borrowing costs and growing odds of a recession weighs on their wallets. And if our survey results do pan out, it may mean the recession everyone’s worried about happens sooner than expected.

Crisis behaviors

We conducted our survey in mid-November, about a week before Black Friday, the historical start of the holiday shopping season. The day after Thanksgiving is known as Black Friday because it signals the period when retailers hope to sell enough goods so that their income statement shows “black,” or profit, for the year rather than “red,” which refers to losses.

We asked over 500 consumers a series of questions about their spending plans, concerns and priorities during this year’s holiday season. Participants were split evenly between men and women, and almost two-thirds had a household income of $70,000 or less.

Overall, the most alarming conclusion from our research is that consumers are reporting consumption behaviors typically exhibited during an economic crisis, similar to those observed in 2009 by consultancy McKinsey during the Great Recession.

One data point stands out: An overwhelming 62% said they were concerned about their job security, while almost 35% indicated they were “very” or “extremely” worried about their financial situation.

Here are three behaviors we found in our survey that suggest consumers are behaving as if the U.S. economy is already in a recession.

1. Spending less

Not surprisingly, cutting spending is the first thing consumers do during economic turmoil.

A study by McKinsey in early 2009 found that 90% of U.S. households cut spending due to the Great Recession, with 33% of consumers indicating a significant cut.

Similarly, respondents to our survey said they plan to spend, on average, around $700 this holiday season, substantially lower than the roughly $880 consumers spent during each of the past three seasons – including early in the pandemic in 2020.

About a third of our sample intended to spend “slightly” or “much” less than in 2021, while 35% said they would spend “about the same” – which from a retailer’s perspective means spending less because last year’s dollars don’t go as far today. The rest said they planned to spend a little or much more.

Inflation is one of the key reasons consumers say they are spending less. Almost 80% of respondents said they are either moderately, very or extremely concerned about the surge in prices, and 87% said those concerns would affect their holiday spending behavior, such as by buying gifts for fewer people or purchasing less expensive items.

Some of our respondents even said they were planning to make their own gifts or buy used goods, rather than shop for new items. The secondhand market has boomed in the last few years, and many shoppers view this option as a way to combat inflationary pressures.

2. Planning ahead

Another thing consumers do when they sense a troubled economy is they plan their purchases more carefully and maintain self-control over spending.

Common strategies include spending more time searching for the best deals, adhering to strict shopping lists, prioritizing necessities and making purchases earlier to spread out their spending – all of which were mentioned by our survey respondents.

We may already be seeing signs of this last strategy. Retail sales for October were up 1.3% from the previous month and up 8.3% from October 2021, which may reflect consumers’ early holiday shopping. If that is the case, this early shopping may result in slumping sales in December.

Also, purchasing early, aided by the plethora of steep discounts offered well in advance of Black Friday, allows consumers to control their shopping behavior better and reduces the risk of impulse buying. Reduction of impulse buying is a strong indicator that consumers are shopping like the economy is in recession.

In our survey, we found that over 50% of participants said that they would be using savings to cover the cost of holiday spending, with many stressing that they would pay with cash. Using cash as a primary form of payment is the main tool consumers have to control spending.

Only 15% of our respondents said that they would use buy-now-pay-later options, which to us is another sign that consumers are preferring cash over forms of credit that creates a new debt.

3. Hypersensitivity to price

During economic crises, consumers become hypersensitive to prices, which trump most other considerations in the minds of consumers.

A whopping 90% of our respondents confirmed that price is their major consideration when shopping during the holidays this year. Other elements of price sensitivity are free shipping, product value and the level of discount, if any.

The singular focus of consumers on price gives retailers a wide range of potential responses, including promoting house brands and private labels that are perceived as having greater value for money. In fact, according to the 2009 McKinsey report, one of the biggest shifts in consumer behavior during and after the 2008 recession was the switch in preference from high-priced premium brands to value brands that tend to have lower prices but still decent quality. During an economic slowdown, consumers typically stop buying brands they are not strongly connected with or loyal to.

Consumers in our survey said buying brand names will be one of the least important influences on their purchases this season.

While economists debate whether a recession is coming, or even whether the U.S. is already in one, our data suggests consumers are beginning to behave like one is already here. That risks becoming a self-fulfilling prophecy as consumers tighten their belts.

The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.

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Glimpse Of Sanity: Dartmouth Returns Standardized Testing For Admission After Failed Experiment

Glimpse Of Sanity: Dartmouth Returns Standardized Testing For Admission After Failed Experiment

In response to the virus pandemic and nationwide…

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Glimpse Of Sanity: Dartmouth Returns Standardized Testing For Admission After Failed Experiment

In response to the virus pandemic and nationwide Black Lives Matter riots in the summer of 2020, some elite colleges and universities shredded testing requirements for admission. Several years later, the test-optional admission has yet to produce the promising results for racial and class-based equity that many woke academic institutions wished.

The failure of test-optional admission policies has forced Dartmouth College to reinstate standardized test scores for admission starting next year. This should never have been eliminated, as merit will always prevail. 

"Nearly four years later, having studied the role of testing in our admissions process as well as its value as a predictor of student success at Dartmouth, we are removing the extended pause and reactivating the standardized testing requirement for undergraduate admission, effective with the Class of 2029," Dartmouth wrote in a press release Monday morning. 

"For Dartmouth, the evidence supporting our reactivation of a required testing policy is clear. Our bottom line is simple: we believe a standardized testing requirement will improve—not detract from—our ability to bring the most promising and diverse students to our campus," the elite college said. 

Who would've thought eliminating standardized tests for admission because a fringe minority said they were instruments of racism and a biased system was ever a good idea? 

Also, it doesn't take a rocket scientist to figure this out. More from Dartmouth, who commissioned the research: 

They also found that test scores represent an especially valuable tool to identify high-achieving applicants from low and middle-income backgrounds; who are first-generation college-bound; as well as students from urban and rural backgrounds.

All the colleges and universities that quickly adopted test-optional admissions in 2020 experienced a surge in applications. Perhaps the push for test-optional was under the guise of woke equality but was nothing more than protecting the bottom line for these institutions. 

A glimpse of sanity returns to woke schools: Admit qualified kids. Next up is corporate America and all tiers of the US government. 

Tyler Durden Mon, 02/05/2024 - 17:20

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Four burning questions about the future of the $16.5B Novo-Catalent deal

To build or to buy? That’s a classic question for pharma boardrooms, and Novo Nordisk is going with both.
Beyond spending billions of dollars to expand…

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To build or to buy? That’s a classic question for pharma boardrooms, and Novo Nordisk is going with both.

Beyond spending billions of dollars to expand its own production capacity for its weight loss drugs, the Danish drugmaker said Monday it will pay $11 billion to acquire three manufacturing plants from Catalent. It’s part of a broader $16.5 billion deal with Novo Holdings, the investment arm of the pharma’s parent group, which agreed to acquire the contract manufacturer and take it private.

It’s a big deal for all parties, with potential ripple effects across the biotech ecosystem. Here’s a look at some of the most pressing questions to watch after Monday’s announcement.

Why did Novo do this?

Novo Holdings isn’t the most obvious buyer for Catalent, particularly after last year’s on-and-off M&A interest from the serial acquirer Danaher. But the deal could benefit both Novo Holdings and Novo Nordisk.

Novo Nordisk’s biggest challenge has been simply making enough of the weight loss drug Wegovy and diabetes therapy Ozempic. On last week’s earnings call, Novo Nordisk CEO Lars Fruergaard Jørgensen said the company isn’t constrained by capital in its efforts to boost manufacturing. Rather, the main challenge is the limited amount of capabilities out there, he said.

“Most pharmaceutical companies in the world would be shopping among the same manufacturers,” he said. “There’s not an unlimited amount of machinery and people to build it.”

While Novo was already one of Catalent’s major customers, the manufacturer has been hamstrung by its own balance sheet. With roughly $5 billion in debt on its books, it’s had to juggle paying down debt with sufficiently investing in its facilities. That’s been particularly challenging in keeping pace with soaring demand for GLP-1 drugs.

Novo, on the other hand, has the balance sheet to funnel as much money as needed into the plants in Italy, Belgium, and Indiana. It’s also struggled to make enough of its popular GLP-1 drugs to meet their soaring demand, with documented shortages of both Ozempic and Wegovy.

The impact won’t be immediate. The parties expect the deal to close near the end of 2024. Novo Nordisk said it expects the three new sites to “gradually increase Novo Nordisk’s filling capacity from 2026 and onwards.”

As for the rest of Catalent — nearly 50 other sites employing thousands of workers — Novo Holdings will take control. The group previously acquired Altasciences in 2021 and Ritedose in 2022, so the Catalent deal builds on a core investing interest in biopharma services, Novo Holdings CEO Kasim Kutay told Endpoints News.

Kasim Kutay

When asked about possible site closures or layoffs, Kutay said the team hasn’t thought about that.

“That’s not our track record. Our track record is to invest in quality businesses and help them grow,” he said. “There’s always stuff to do with any asset you own, but we haven’t bought this company to do some of the stuff you’re talking about.”

What does it mean for Catalent’s customers? 

Until the deal closes, Catalent will operate as a standalone business. After it closes, Novo Nordisk said it will honor its customer obligations at the three sites, a spokesperson said. But they didn’t answer a question about what happens when those contracts expire.

The wrinkle is the long-term future of the three plants that Novo Nordisk is paying for. Those sites don’t exclusively pump out Wegovy, but that could be the logical long-term aim for the Danish drugmaker.

The ideal scenario is that pricing and timelines remain the same for customers, said Nicole Paulk, CEO of the gene therapy startup Siren Biotechnology.

Nicole Paulk

“The name of the group that you’re going to send your check to is now going to be Novo Holdings instead of Catalent, but otherwise everything remains the same,” Paulk told Endpoints. “That’s the best-case scenario.”

In a worst case, Paulk said she feared the new owners could wind up closing sites or laying off Catalent groups. That could create some uncertainty for customers looking for a long-term manufacturing partner.

Are shareholders and regulators happy? 

The pandemic was a wild ride for Catalent’s stock, with shares surging from about $40 to $140 and then crashing back to earth. The $63.50 share price for the takeover is a happy ending depending on the investor.

On that point, the investing giant Elliott Investment Management is satisfied. Marc Steinberg, a partner at Elliott, called the agreement “an outstanding outcome” that “clearly maximizes value for Catalent stockholders” in a statement.

Elliott helped kick off a strategic review last August that culminated in the sale agreement. Compared to Catalent’s stock price before that review started, the deal pays a nearly 40% premium.

Alessandro Maselli

But this is hardly a victory lap for CEO Alessandro Maselli, who took over in July 2022 when Catalent’s stock price was north of $100. Novo’s takeover is a tacit acknowledgment that Maselli could never fully right the ship, as operational problems plagued the company throughout 2023 while it was limited by its debt.

Additional regulatory filings in the next few weeks could give insight into just how competitive the sale process was. William Blair analysts said they don’t expect a competing bidder “given the organic investments already being pursued at other leading CDMOs and the breadth and scale of Catalent’s operations.”

The Blair analysts also noted the companies likely “expect to spend some time educating relevant government agencies” about the deal, given the lengthy closing timeline. Given Novo Nordisk’s ascent — it’s now one of Europe’s most valuable companies — paired with the limited number of large contract manufacturers, antitrust regulators could be interested in taking a close look.

Are Catalent’s problems finally a thing of the past?

Catalent ran into a mix of financial and operational problems over the past year that played no small part in attracting the interest of an activist like Elliott.

Now with a deal in place, how quickly can Novo rectify those problems? Some of the challenges were driven by the demands of being a publicly traded company, like failing to meet investors’ revenue expectations or even filing earnings reports on time.

But Catalent also struggled with its business at times, with a range of manufacturing delays, inspection reports and occasionally writing down acquisitions that didn’t pan out. Novo’s deep pockets will go a long way to a turnaround, but only the future will tell if all these issues are fixed.

Kutay said his team is excited by the opportunity and was satisfied with the due diligence it did on the company.

“We believe we’re buying a strong company with a good management team and good prospects,” Kutay said. “If that wasn’t the case, I don’t think we’d be here.”

Amber Tong and Reynald Castañeda contributed reporting.

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Petrina Kamya, Ph.D., Head of AI Platforms at Insilico Medicine, presents at BIO CEO & Investor Conference

Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb….

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Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb. 26-27 at the New York Marriott Marquis in New York City. Dr. Kamya will speak as part of the panel “AI within Biopharma: Separating Value from Hype,” on Feb. 27, 1pm ET along with Michael Nally, CEO of Generate: Biomedicines and Liz Schwarzbach, PhD, CBO of BigHat Biosciences.

Credit: Insilico Medicine

Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb. 26-27 at the New York Marriott Marquis in New York City. Dr. Kamya will speak as part of the panel “AI within Biopharma: Separating Value from Hype,” on Feb. 27, 1pm ET along with Michael Nally, CEO of Generate: Biomedicines and Liz Schwarzbach, PhD, CBO of BigHat Biosciences.

The session will look at how the latest artificial intelligence (AI) tools – including generative AI and large language models – are currently being used to advance the discovery and design of new drugs, and which technologies are still in development. 

The BIO CEO & Investor Conference brings together over 1,000 attendees and more than 700 companies across industry and institutional investment to discuss the future investment landscape of biotechnology. Sessions focus on topics such as therapeutic advancements, market outlook, and policy priorities.

Insilico Medicine is a leading, clinical stage AI-driven drug discovery company that has raised over $400m in investments since it was founded in 2014. Dr. Kamya leads the development of the Company’s end-to-end generative AI platform, Pharma.AI from Insilico’s AI R&D Center in Montreal. Using modern machine learning techniques in the context of chemistry and biology, the platform has driven the discovery and design of 30+ new therapies, with five in clinical stages – for cancer, fibrosis, inflammatory bowel disease (IBD), and COVID-19. The Company’s lead drug, for the chronic, rare lung condition idiopathic pulmonary fibrosis, is the first AI-designed drug for an AI-discovered target to reach Phase II clinical trials with patients. Nine of the top 20 pharmaceutical companies have used Insilico’s AI platform to advance their programs, and the Company has a number of major strategic licensing deals around its AI-designed therapeutic assets, including with Sanofi, Exelixis and Menarini. 

 

About Insilico Medicine

Insilico Medicine, a global clinical stage biotechnology company powered by generative AI, is connecting biology, chemistry, and clinical trials analysis using next-generation AI systems. The company has developed AI platforms that utilize deep generative models, reinforcement learning, transformers, and other modern machine learning techniques for novel target discovery and the generation of novel molecular structures with desired properties. Insilico Medicine is developing breakthrough solutions to discover and develop innovative drugs for cancer, fibrosis, immunity, central nervous system diseases, infectious diseases, autoimmune diseases, and aging-related diseases. www.insilico.com 


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