Consumer difficulties mounting in 2024, predicts Fitch
Shifting Tides in Retail: A Glimpse into 2024
Orlando, Fl. - The era of the resilient consumer might be drawing to a close, according to Fitch Senior Director David Silverman. In a panel at ICR on Monday, he noted it's been "quite a surprise" that the consumer has remained so healthy in recent years, but stronger headwinds are on the horizon.
"We're thinking a lot about the tailwinds that the consumer has enjoyed dissipating to a large extent and a sense of real rising headwinds," Silverman said. "Rising debt levels, reduced consumer savings, rising interest rates impacting ongoing monthly payments, the compound impact of inflation over the last several years, and the advent of college loan repayments starting over the last couple of months. While we still think the consumer fundamentally is healthy, we do think they are softening."
In the coming year, Silverman foresees shoppers prioritizing value over luxury. He points out that discretionary categories will experience declining volumes in 2024, a trend that started in 2023. Categories like home goods, sporting goods, apparel, and electronics faced tough times last year, with retail sales numbers from the U.S. Commerce Department indicating home goods sales declined by 7.5% in November alone. Sporting goods fell 0.7%, but electronics and apparel saw recovery, growing 12% and 1.6% respectively.
This shift could cause issues for some retailers, particularly those who thrived in 2020 and 2021 and expected continued growth. Refinancing debt will become challenging, Silverman suggests. Fitch has its own list of at-risk retailers, which this fall included the likes of 99 Cents, At Home, Belk, Rugs USA, and Joann.
Despite these challenges, Silverman highlights one potential positive: the disappearance of supply chain difficulties from 2022. This should lead to higher profit margins, he believes. Fitch also anticipates more retailers will emulate Amazon by beefing up their business-to-business offerings, such as marketplaces, retail media networks, and supply chain services.
Walmart, for instance, has invested heavily in its GoLocal delivery business, while numerous other retailers have launched their own marketplaces, including Macy's and, more recently, Michaels.
"Scale matters in retail," Silverman noted. "As evidence of that, you're starting to see some of the larger companies actually take the infrastructure they've built and turning it out to third parties, offering supply chain services and other things. And we're seeing DTC brands in the post-DTC revolution going back to some of these larger companies for either distribution or supply chain infrastructure."
Added complexity is on the horizon in 2024. With the upcoming election, regulation will move front and center. Other topics to monitor include retail theft, generative AI, and ESG.
- Enrichment Data: Fitch Senior Director David Silverman predicts a shift in consumer spending from 2024 onwards, driven by economic uncertainty and a decline in discretionary spending. Policy-driven volatility due to tariff hikes and geopolitical tensions creates pricing and profitability uncertainty. Retailers are advised to carefully consider consumer sentiment and policy turbulence heading into mid-2025.
- The resilient consumer era seems to be nearing its end, as Fitch Senior Director David Silverman foresees a shift in consumer spending trends by 2024.
- In the coming years, Silverman predicts shoppers will prioritize value over luxury, leading to declining volumes in discretionary categories like home goods, sporting goods, apparel, and electronics.
- Retailers who thrived in 2020 and 2021 may face difficulties in 2024, as refinancing debt becomes a challenge, particularly for at-risk retailers like 99 Cents, At Home, Belk, Rugs USA, and Joann.
- One potential positive that Silverman highlights is the disappearance of supply chain difficulties from 2022, which could lead to higher profit margins for retailers.
- To adapt to the changing landscape, Fitch anticipates more retailers will emulate Amazon by beefing up their business-to-business offerings, such as marketplaces, retail media networks, and supply chain services.
- The upcoming election in 2024 brings added complexity to the retail industry, with regulation moving to the forefront along with other topics like retail theft, generative AI, and ESG.
- Scale matters in retail, and Silverman notes that larger companies are turning their infrastructure into third-party services, offering supply chain services and other things to DTC brands or other retailers.
