Retailers prepare for potential backlash on DEI initiatives during election season and holiday shopping.

• Retailers are preparing for backlash regarding DEI policies ahead of the 2024 presidential election and the crucial holiday shopping season.
• While some companies are concerned about attending public DEI events, others are strategizing on how to avoid criticism over their policies and programs.
• A retail industry insider told CNBC that there's a consensus in the retail community that nobody wants to be associated with Tractor Supply.

Retailers are facing a challenging equation as they prepare for the crucial holiday shopping season, with a focus on DEI initiatives.

Brands are preparing for backlash related to their diversity, equity, and inclusion policies and are taking steps to avoid alienating customers who may view them as too "woke" or not woke enough. Some are seeking advice from outside advisors, while others are avoiding public events on the topic as criticism of equity and inclusion programs continues to grow in the lead-up to the 2024 presidential election.

Retail industry insiders, strategists, and staffers spoke to CNBC anonymously to provide candid insights.

The retail industry is united in opposition to the company's decision to abandon its DEI initiatives following criticism from conservative activist Robby Starbuck, according to a retail industry insider.

"Retailers want to be proactive on DEI, but they don't want their views to be public because they want to sell to everyone and it's become a political issue."

The retail industry's concerns over DEI arise after several high-profile companies, including and , have recently reversed some of their equity and inclusion policies. These changes involved ending sponsorships for Pride festivals and cutting ties with the Human Rights Campaign, an LGBTQ+ advocacy group.

While the number of new jobs for chief diversity and inclusion officers increased by nearly 170% between 2019 and 2022, according to a LinkedIn study, this trend has reversed in the past year, with companies like and cutting staff and downsizing DEI programs.

Some companies, including Lowe's, have cited the recent U.S. Supreme Court decision that prohibited affirmative action as a reason for reevaluating their DEI policies. Privately, many retailers are worried about losing customers and facing conservative criticism, according to industry insiders.

To avoid a repeat of the negative impact on sales caused by their marketing campaigns and product collections targeting the LGBTQ community, retailers are taking precautions to ensure they don't offend their customers during the holiday shopping season.

Concerns about public events

The politicized election year has cast a pall over certain industry events due to the growing concern around public DEI efforts.

The Retail Industry Leaders Association hosted its annual summit for corporate communications professionals in late September. This year, the event was linked with RILA's Diversity Equity & Inclusion Leaders Council, causing some retailers to question the optics of attending, as expressed by participants who had reservations.

RILA declined to comment.

A former retail executive, who often advises publicly traded retailers but did not attend the event, stated that it is understandable for some companies to be concerned about attending because "the optics of it may not be so great."

"The former executive, speaking anonymously, stated that the tide is turning against DE&I initiatives. They believe this is due to the election and the need for CEOs to hedge their bets."

Major retailers with large customer bases are facing a "no-win situation" due to the political divide, as they cannot satisfy all customers without alienating some.

Preparing for backlash

One strategist at a top New York City advisory firm has stated that their retail clients' primary concern is DEI and how they should handle potential backlash or avoid it by preemptively walking back certain policies and practices. The discussions included whether to participate in annual gay pride parades and how to communicate any policy changes to staff.

"Retailers are highly sensitive and concerned about what they put out there, especially during their biggest selling season, as they don't want to upset consumers or generate negative publicity, said Sonia Lapinsky, head of consulting firm AlixPartners' global fashion practice."

A recent consumer sentiment survey by AlixPartners revealed that only about half of millennial consumers believe it is very important for retailers to align their messaging, interactions, and marketing with their values.

According to Lapinsky, millennials make up 45% of the population, while Gen Z and Gen X have less than 40%, despite the belief that Gen Z is particularly concerned about this issue. Boomers, on the other hand, represent only 16%.

It is important for retailers to consider diversity, equity, and inclusion (DEI) when developing their business strategies, according to Lapinsky.

"According to Lapinsky, if you're designing a product line, service, or anything similar, and you don't have a diverse representation of people who have been creating it, you'll quickly lose touch with what your consumers think about it. Even if they say they don't need to see it reflected in messaging, they will need to see it reflected in products, experiences, and service levels that resonate with them. This will vary based on who they are and where they come from."