ORLANDO, Fl. — The days of the resilient consumer could be coming to an end. In a panel at ICR on Monday, Fitch Senior Director David Silverman said it’s been “a surprise” for the consumer to be this healthy over the past few years and stronger headwinds are on the way.
“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, the advent of college loan repayments that started over the last couple of months. While we still think the consumer fundamentally is healthy, we do think they are softening.”
Silverman predicts shoppers will seek out greater value in 2024 and noted that consumer discretionary categories are going to see volumes decline in the new year, a process that started in 2023. Categories like home, sporting goods, apparel and electronics had a tough go of it last year, according to monthly retail sales numbers from the U.S. Commerce Department. In November, home goods’ sales were down 7.5%, while sporting goods fell 0.7%. Electronics and apparel saw a recovery, with the former growing 12% and apparel nudging up 1.6%.
This could create problems for some retailers, particularly those who performed well in 2020 and 2021 and assumed that type of growth would continue. Refinancing debt will likely be more difficult this year, Silverman said. The ratings agency has its own list of vulnerable retailers, which this fall included players like 99 Cents, At Home, Belk, Rugs USA and Joann.
One upside from prior years, however, is that the supply chain challenges of 2022 are now gone, which should mean higher margins, according to Silverman. Fitch also expects more retailers to follow Amazon’s model of beefing up business-to-business offerings like marketplaces, retail media networks, supply chain services, “anything that a large company thinks that it has that it can monetize.”
That covers efforts by the likes of Walmart, which has invested deeply in its GoLocal delivery business and a whole host of retailers that have launched their own marketplaces, including Macy’s and, more recently, Michaels.
“Scale matters in retail,” Silverman said. “As evidence of that, you’re starting to see some of the larger companies actually take the infrastructure that they’ve built and turning it out to third parties, offering supply chain services and other things. And we’re seeing DTC brands in this post-DTC revolution going back to some of these larger companies for either distribution or supply chain infrastructure.”
2024 will be another year of uncertainty in many ways, but there could also be developments to some key trends impacting the industry. In an election year, Silverman said regulation will come to the forefront. Other topics to watch include retail theft, generative AI and ESG.
