As the holiday shopping season approaches, retailers are facing a complex landscape of consumer behavior. While some have reported a sustained demand for holiday goods, a recent dip in credit card spending in September hints at a potential fourth-quarter slowdown.
Oliver Chen, senior research analyst at TD Cowen, commented on the evolving consumer sentiment, stating, “What we are seeing is cracks in the consumer.”
Chen identified several challenges confronting consumers. Inflation, although exhibiting a slower trajectory, remains a concern. August witnessed a 0.6% month-over-month rise in consumer prices, marking a 3.7% surge from the previous year. Additionally, the resumption of student loan payments is placing pressure on household budgets.
Rising energy costs have further compounded the situation. As of Friday, the national average for gasoline stood at $3.83 per gallon, as reported by AAA, although this figure represents a slight decrease from the 2023 peak, it is still below the high of over $5 per gallon recorded in 2022.
Chen also highlighted that consumers who continue to spend are increasingly favoring travel over material goods. Consequently, retailers are experiencing diminished foot traffic for the month of September.
UBS analyst Jay Sole echoed these observations, stating, “What we found is that consumers are really feeling cautious.” He attributed this caution to concerns over obligations like student loan repayments, which may lead to reduced spending on discretionary items such as apparel, footwear, and accessories, potentially impacting stock prices.
According to a recent Coresight Research survey, the percentage of respondents expecting an improved personal financial situation compared to last year during the holiday season dropped. In August, the figure declined to 18.8% from the 34.2% recorded in June.
Coresight Research anticipates modest growth rates of approximately 1% to 1.5% in real retail sales, along with around 3% in nominal retail sales. Nevertheless, some retailers are approaching the holiday season with optimism.
Costco (COST) CFO Richard Galanti expressed confidence in the retailer’s early rollout of holiday items, stating, “Christmas is good.” Galanti noted strong performance in various holiday categories, including decorations, trees, and toys.
Similarly, Walmart CEO Doug McMillon conveyed positive sentiments regarding the state of the US consumer during the Goldman Sachs Global Consumer Conference in New York City. He remarked, “I feel pretty good about where the consumer is in the US,” emphasizing the encouraging back-to-school trends as a positive indicator for the upcoming holiday season.
McMillon dismissed concerns about the broader US economy, citing Walmart’s expanding market share. In the second quarter, Walmart’s same-store sales surged by 6.3%, surpassing the expected 4.04%, according to data from Bloomberg.
Analyst Oliver Chen singled out both Walmart and Costco as key players to monitor, stating, “We like market share leaders.” This list also included Levi’s and LVMH, as he identified them as favorable positions in the current economic climate.
Regarding potential deals, UBS analyst Jay Sole advised consumers to keep a watchful eye, assuring that there will be promotions. He explained, “There’s still too much inventory out there,” indicating that retailers may resort to discounts and promotions to clear excess stock.
As retailers brace for the holiday shopping season, a complex interplay of consumer caution, economic factors, and shifting preferences sets the stage for a pivotal period ahead.
Source: Yahoo Finance
