The days of “exuberantly exuberant consumption” are over – Sourcing Journal


Consumer confidence and US retail sales could deteriorate before they improve.

Goldman Sachs retail analysts identify risks to consumer spending.

“We will likely remain in a durable goods recession for many quarters to come as we curtail excessively exuberant consumption during Covid – a dynamic we believe will continue to fuel disappointing earnings and headlines from some digital and physical retailers. “wrote the retail team. in a research note published Monday. “In the meantime, we’re bracing for a turbulent back-to-school and holiday shopping season.”

They see potential for a “significant decline” in consensus estimates through June next year.

Still, things could look up in 2023 if employment income growth continues, they said.

The recent correction in the stock market presents a risk that net worth may also correct. While the low-income consumer already faces the pressures of rising inflation, those earning more might see some pressures too broadly in the form of their higher tax bracket.

Consumer finances are still in decent shape despite inflation. April saw 11.4 million unfilled jobs compared to just 4.7 million looking for work, figures that suggest people can land better wages and incomes. But consumers who have dipped into their savings may not continue to do so if they do not feel confident in the economy, which could threaten the momentum in clothing fueled by the return of shopping for going out.

Private labels saw market share increase before Covid, but suffered following the pandemic supply chain disruption. And government stimulus checks have given some low-income consumers some breathing room. But now, any potential drop in retail sales will likely be more pronounced among lower-income shoppers who may not have the choice to buy wallet-friendly private labels. While this change benefits private labels, national brands could see their pricing power suffer, analysts say.

For now, the industry has inflated its inventories of clothing and durable goods. Retailers plan to promote or discount to eliminate excess stork. With real disposable income now in the red, discounting benefits consumers by helping to dampen inflation. The hit to margins will not be good for retail, however.

In addition, the real personal consumption expenditure (PCE) price index seems to be running out of steam. E-commerce could see its sales suffer due to a weakening outlook for durable goods, analysts said.

This month’s S&P Global Markets Intelligence report said Internet retail and direct marketing had the probability of default within a year indicator of any industry at 8.1. % as of July 13 vs. 4.5% for all publicly traded retailers. Retail home furnishings reached 6.8%, followed by department stores at 5.2%, specialty stores at 4.9%, clothing retail at 4.4% and clothing, accessories and luxury goods at 4.0%. The risk of furniture companies is 3.2%, that of shoe manufacturers 1.7%.

John Kernan of Cowen & Co. wrote in a research note last month that the health of low-income consumers had deteriorated as the summer months and back to school approached. And given inventory errors that caused Target to cancel some orders, analysts say some retailers are far too optimistic about their forecasts for second-half sales and gross margins.

As inflation looms in retail, driving consumer prices up 9.1%, the latest National Retail Federation study expects shoppers to hit $37 billion in Last year’s record spending on products for school-aged students, with back-to-college spending rising $3 billion above 2021’s $71 billion.

An NRF webinar on back-to-school spending on Tuesday noted that consumers plan to cut back on dining out (60%), while more than a third are cutting back on travel spending so they can afford shopping for school. ‘school. Consumers also said they dipped into their savings and went into debt to buy what their children need to study in the classroom. And while middle- and high-income people had savings to fuel some of their spending, it was low-income households that relied on debt to fund their purchases. Additionally, 68% of respondents in a recent NRF study of back-to-school and back-to-school shopping said they noticed higher prices for clothing and footwear. And while consumers worried about supply chain issues and stockouts, retailers had factored in possible delays by introducing stock earlier, NRF said.


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