As the resumption of student loan payments looms in October, a recent study conducted by Jefferies reveals that consumers are anticipating a reduction in their spending habits at retailers. The survey, which polled 600 Americans holding outstanding student loans, disclosed that 90% expressed varying degrees of concern regarding their monthly expenses, with half indicating a high level of apprehension.
The retail sector, particularly in the apparel and accessories segment, is set to bear the brunt of this financial unease, according to Jefferies’ cautionary advisory. In a research note released on Monday, Jefferies announced a downgrade of Foot Locker (FL), Urban Outfitters (URBN), and Nike (NKE) from Buy to Hold, signaling a less optimistic outlook for these companies.
Among the respondents surveyed, nearly one-third stated their intention to curtail their patronage of Urban Outfitters due to the anticipated reinstatement of loan payments. Notably, the footwear industry, in which Nike and Foot Locker play pivotal roles, emerges as one of the most vulnerable sectors facing a potential consumer slowdown linked to student loan repayments.
The report underscores that these companies are already grappling with existing challenges that have adversely impacted their operations. Foot Locker, for instance, has encountered hurdles in its turnaround efforts, with the company’s stock witnessing a precipitous decline of 50% this year. Meanwhile, Urban Outfitters’ Anthropologie segment experienced an encouraging surge in same-store sales, boasting a 51% increase, while its flagship Urban Outfitters brand registered a concerning 56% decline in sales.
Similarly, Nike’s direct-to-consumer business model may face headwinds, with 39% of respondents expressing an intention to explore more budget-friendly alternatives in apparel and accessories. Additionally, 35% of respondents indicated a similar inclination towards footwear alternatives.
Jefferies postulates that certain value-centric retailers like Costco (COST), Walmart (WMT), and TJX (TJX) may stand to benefit from this trend of consumer downscaling. However, the road ahead remains challenging, particularly with the holiday season swiftly approaching. Companies are advised to brace for a potential decline in consumer spending, as the resumption of student loan repayment could emerge as a significant “pain point” for consumer stocks throughout the remainder of 2023.
Source: Yahoo Finance
