Consumers are the drivers of the US economy, and their ability to spend has defied expectations time and time again. In early 2020, after a brief but sharp recession due to the pandemic, consumers spent on expensive items, from patio furniture to flat-screen TVs and home gym equipment. Then came what economists have called “revenge spending,” with experiences that were off-limits during lockdowns, such as travel and going to concerts, prioritized.
And now there are signs that some shoppers are becoming more cautious, as Americans’ savings erode, inflation persists, and other factors tighten their wallets — specifically, the resumption of student loan payments in October. Financial reports released this week from retailers – including Macy’s, Kohl’s, Foot Locker and Nordstrom – suggest that a shift is underway, from consumers buying impulsively to spending more on their necessities.
“Last year it was more psychological,” said Janine Stechter, retail analyst at brokerage BTIG. “But now that we’ve been dealing with inflation for so long, I think we’ve reached a point where the savings are depleted.”
Overall, consumer spending remains strong. retail Growth rates in July were stronger than expected, prompting some economists to raise their forecasts for economic growth this quarter. A strong labor market and rising wages have rebounded Consumer confidence.
But even retailers with strong sales say there are signs of economic stress among shoppers.
“It’s clear that the low-income shopper, our core customer, continues to be under significant economic stress,” Michael O’Sullivan, CEO of off-price retailer Burlington Stores, said in a statement Thursday. In the three months to July, Burlington’s sales rose 4% and its profits doubled.
Historically, discounters have performed well during times of economic uncertainty as shoppers across the income spectrum look to save money. Burlington, along with Wal-Mart, Dollar Tree and TJX, owner of TJ Maxx and Marshalls, reported an uptick in sales in the most recent quarter, as shoppers sought discounts on staples like groceries, switched to cheaper private-label products and curbed spending. on estimated goods. goods.
The strong performance at discount retailers and retailers contrasted with those at supermarket chains and many fashion and footwear retailers.
In calls with Wall Street analysts this week, retail executives also cited rising credit card delinquency and higher rates of retail theft, ominous signs that consumers may be shorter on cash.
Jeff Genet, chief executive of Macy’s, the largest US department store, said shoppers had “fallen more aggressively” on spending in the discretionary categories, which led to an overall decline in sales in the most recent quarter. Half of Macy’s shoppers make $75,000 or less.
“They don’t switch easily and become more deliberate in allocating their disposable income,” he said.
“Probably the most important thing people spend money on is general merchandise,” said Max Levchin, chief executive of Affirm, which offers shoppers credit at checkout through a so-called buy-now-pay-later model. “People are looking for more value for less money, or simpler functionality for a lower price,” he said. The company reported an 18 percent increase in active customers compared to the previous year.
The chief financial officers of Macy’s, Cole and Nordstrom told analysts that defaults on department store credit cards had risen. In Messi’s case, the increase in defaults in the last quarter was “faster than expected”.
“When people don’t pay their credit card bills, it indicates a really stressed consumer,” said Ms Stechter of BTIG.
This means that consumers are becoming more selective about where they shop and what they buy.
“You will see winning and losing brands,” Fran Horowitz, chief executive of Abercrombie & Fitch, said in an interview. Ms Horowitz said the fashion retailer reported a jump in sales of more than 10 per cent in the most recent quarter, as it was able to “chase” new styles that drew more shoppers through the doors.
By contrast, on the same day that Foot Locker reported a nearly 10 percent drop in sales for the quarter, it also cut its 2023 earnings forecast for the second time this year, citing “continued consumer weakness.”
The back-to-school shopping season now underway is crucial for retailers, and a harbinger of whether there will be strong sales for the rest of the year.
A new dynamic will soon emerge. In October, student loan payments will resume for about 44 million Americans, after pandemic relief measures halted them in March 2020. Retail executives have warned that resuming payments could further strain shoppers’ budgets.
Halloween, which comes just weeks after payments resume, will also be a gauge of people’s willingness to spend on discretionary items like costumes and candy, said Nikki Bird, vice president of strategy at Aptos, a technology company that works with retailers like Crocs, LL. Beans and New Balance.
She said the reimbursement will affect the age group that usually spends on Halloween more. ‘I think that would really tell us what this means for the holiday season,’ said Mrs. Bird. “If Halloween is a flop, then I think we have to really start looking at whether consumers are going to go big on Christmas, because I think he says they won’t.”
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