On February 20, 2024, a customer walked through The Home Depot store in Austin, Texas.
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The consumer landscape for 2024 is already beginning to take shape—even before the country’s major retailers begin reporting first-quarter earnings. The Home Depot and Walmart next week.
There are signs that U.S. consumers are still spending, especially when it comes to experiences. But stubbornly high prices are squeezing lower-income consumers, putting pressure on daily purchases and corporate profits.
Generally speaking, credit card companies like American Express, visa and MasterCard Describe spending trends as “relatively strong,” “relatively stable,” or even “healthy.”Payment companies such as Paypal and clogged Still seeing strong transaction volume and payments growth.
Airlines and hotels expect a strong travel season ahead, especially when it comes to international destinations, Morgan Stanley’s Michael Wilson notes that “one in three consumers prioritizes travel over other discretionary purchases and services.”
In fact, a Morgan Stanley survey shows that 60% of U.S. consumers are planning a summer vacation this year, and only about half of them expect to spend more than they did last summer.
Priceline Parents Booking Holdings There is no sign consumers are cutting short vacations or reducing their restaurant choices, analysts told analysts. caesar said overall spending at its Las Vegas casino resorts remains strong.
What’s more, cruise lines are seeing record bookings despite soaring prices. Although food and beverages cost significantly more, passengers are free to spend as much as they want on board.
On January 11, 2024, the world’s largest cruise ship, Royal Caribbean’s Icon of the Seas, docked at the Port of Miami.
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Concert tickets are also still very popular, even if the price is high—— live country It stated that “fan demand is no problem compared to last summer” and that “global fan demand is stronger than ever before.”
Daily purchases
But when it comes to discretionary and everyday purchases, the story is different, with consumers appearing stingier amid economic headwinds such as higher food costs, rising mortgage rates and reduced government rebates.
As an online artisan marketplace etsi “Consumers’ wallets remain tight, so they often have little left after paying for food, gas, rent and child care.”
Consumers have been postponing large-scale home purchases due to economic uncertainty — and it could be Home Depot and Lowe’s Results reported this month.
wayfelCompanies reporting results on Thursday told analysts that pricier categories “remain soft” and were unsure when demand for home goods would improve. Stanley Black & Decker A similar warning was issued, saying “sluggish consumer and DIY demand” was due to “some degree of hesitancy from consumers and any end-users regarding big-ticket items.”
swirlHome appliance sales are also in trouble.and Poole Corporation One of the country’s largest pool supplies distributors said that while pool maintenance spending was “steady,” pool construction and more discretionary purchases were weak due to high interest rates.
Consumers are also becoming more picky about how often and where they eat out. Restaurant sales this season largely disappointed Wall Street due to transportation difficulties.
The phone screen shows the Star Coffee logo and the background shows the Starbucks logo as an illustration photo. August 23, 2022, Krakow, Poland. Russia withdrew from the Russian market in March after its invasion of Ukraine. (Photo by Beata Zawrzel/NurPhoto via Getty Images)
Beata Zaouzel | Photos of Beata Zaouzernur | Getty Images
Starbucks Chief Executive Laxman Narasimhan told analysts: “We continue to feel the impact of greater consumer caution, especially for our occasional customers. And the deteriorating economic outlook has taken a toll on customer traffic. Pressure, the impact is being felt across the industry. McDonald’s Adding, “Consumers are certainly very picky in how they spend their money.”
price sensitivity
What’s clear this earnings season is that U.S. consumers are increasingly price-sensitive, especially when it comes to everyday purchases. Bank of America’s Savita Subramanian noted that “consumer rifts are emerging,” especially among lower-income groups.
Here are some companies warning about price sensitivity:
- Both Coca Cola and Pepsi A behavioral shift in value-seeking consumers was observed, especially at the lower end of the market.
- meat producer Tyson Foods told analysts that accumulating inflationary pressures have “created more cautious, price-sensitive consumers” and are experiencing “a decline in private label brands among lower-income households”.
- Hershey’s It said it continues to see “value-seeking behavior from consumers.”
- Special K and Pringles Owner Kelanova North American sales fell 5% as prices rose 5% from the same period last year, creating elastic pressure.
- Parent company of Burger King and Popeyes restaurant brand noted, “We are seeing consumers become more price sensitive, resulting in slower check growth.”
- Footwear and apparel manufacturers Steve Madden “We do see customers who are still price-sensitive,” Blunt said, noting that its outlet stores are outperforming its full-price business.
Weakness among lower-end consumers could create problems for discounters, e.g. Dollar General and dollar tree and discount retailers such as Tian Jiaxing, Ross Store and burlington store when they report earnings in the coming weeks.
Amazon succinctly describes the new normal: “Customers are being cautious when shopping, cutting prices when possible, and looking for deals.” Etsy feels the same way: “Consumers are feeling stressed, so they are looking for value, deep discounts, and sales.”
profit squeeze
As a result, companies are now forced to compete for consumers’ dollars through promotions and offers. Some achieved at least short-term success.
shake cabin said its sales improved from February to April due to effective promotions and offers. domino Says its revamped loyalty program is helping sales. Taco Bell’s value menu keeps customers coming back.
While pressure is mounting on businesses to cut prices to win over consumers, sticky inflation in food, energy, labor and other input costs poses a significant obstacle to profitability for restaurants, retailers and consumer goods companies.
The pricing power of most companies has declined in recent quarters – partly because of a more challenging demand environment and partly because prices were already at very high levels.
Pavlo Gonchar | Light Rocket | Getty Images
Shake Shack said it raised prices in mid-March, but executives told analysts they have “no current plans to raise prices further this year.” The decision was taken even though they “expected inflationary pressures on wages, food and paper to persist”.
As promotions intensify, profit margins will face greater pressure. In the case of Starbucks, the company’s profit margins were not only lower than Wall Street’s expectations, but also smaller than a year ago. One of the reasons for the disappointing profit margin performance cited in its earnings report was “increased promotional activity.” Add to that poor traffic and it can cause distress.
Ultimately, as the company faces greater pricing pressure in the future, they may have to rely on other cost reductions or effective cost management to help maintain margins in the coming quarters.
Get ready for an interesting retail earnings season in the coming weeks.
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