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US retailers ditch talk of ‘Roaring Twenties’ boom amid consumer pinch

The “unmasking” of American shoppers as they shed pandemic precautions “could lead to a Roaring Twenties type of consumer exuberance,” RH chief executive Gary Friedman predicted on his upmarket furniture company’s earnings call last June.

One year on, US companies have stopped predicting a repeat of Jazz Age excesses, according to an analysis of transcripts via Sentieo, the financial data group. On Thursday, Friedman announced that RH was cutting its financial forecasts because of “multiple macro headwinds”.

The strong housing market, record equity valuations and low interest rates that Friedman hailed in summer 2021 have been replaced by rising rates, a bear market and a 40-year peak in US inflation.

Instead of exuberance, consumer sentiment has hit its lowest level since the University of Michigan’s index began in 1952, stoking fears of a recession. Adjusted for inflation, consumer spending fell by 0.4 per cent in May, figures released on Friday showed.

Behind those headlines lies a more complicated story, however. Comments from retail and consumer industry executives in recent weeks suggest that the picture of consumer demand is being clouded by supply disruptions and by Americans’ changed priorities as they emerge from two years of pandemic restrictions.

Companies serving the high and low ends of the economic spectrum also see a split in spending that has left some businesses highlighting low-priced “value” offerings while others project confidence about demand for premium products.

A person shops at a Bed Bath & Beyond store in Manhattan, New York City
Delayed shipments pushed up inventories 15 per cent at Bed Bath & Beyond © Andrew Kelly/Reuters

That “bifurcation of consumers” should leave companies such as Hormel Foods well positioned in a recession, chief executive James Snee told one analyst two weeks ago.

So while Hormel is reporting record sales of Spam, the canned pork product targeted at lower-income consumers, Snee also highlighted demand for pricier charcuterie boards.

At Estée Lauder, similarly, chief financial officer Tracey Travis told a conference that it was seeing more price sensitivity for its “entry-level” products but customers of La Mer were still loyal to the premium brand, which sells 2oz pots of face cream for $360.

The split in spending patterns is showing up in survey data. Monthly spending among US adults making less than $50,000 was down 8 per cent in May year on year, according to pollster Morning Consult, while spending among those making more than $50,000 was up 25 per cent.

Higher-end consumers “are worried about inflation but they’re not necessarily tightening their belts”, said Katherine Cullen, head of consumer research at the National Retail Foundation, the trade group.

The problems facing some retailers stem less from a shortage of demand than from an excess of supply. Large chains were left with bloated inventories, often because they had over-ordered in anticipation of supply chain disruptions.

Line chart of Retailers' inventories ($bn) showing Supplies have ballooned for US retailers as consumers pull back

At home goods retailer Bed Bath & Beyond, for example, delayed shipments pushed inventories up by 15 per cent year on year in its most recent quarter, just as sales dropped by 25 per cent.

Some of the inventory that retailers ordered for last December’s holiday season arrived late because of bottlenecks at US ports. Covid-19 shutdowns in China have since caused further disruption.

Chains from Walmart to Macy’s have lamented similar inventory overstocking, with Target announcing on June 7 that it would mark down prices and cancel orders in order to clear out excess inventories.

When Covid-19 stimulus packages ended, “that was a big, big turning point”, said Ravi Saligram, chief executive of Newell Brands, the company behind Sharpie pens and Coleman tents.

Newell began losing the less affluent consumers who had traded up in the pandemic to brands such as Yankee Candle, and “just chasing them with huge discounts is not going to bring them back”.

But executives see bright spots in other categories where pandemic restrictions created pent-up demand.

“We have a generally resilient consumer. They’ve come out of the pandemic. They’re trying to find something that feels like normal life,” Brian Cornell, chief executive of Target, told the Economic Club of New York last month.

Travel spending has surged, for example, surpassing 2019 levels in April for the first time since the pandemic began, according to the US Travel Association, a trade group.

A shopper at a Target store in New Jersey
Target’s chief said: ‘We have a generally resilient consumer’ © Jeenah Moon/Bloomberg

Consumers now have a strong desire to celebrate in person, the NRF’s Cullen said, meaning they may be willing to spend more for special occasions.

Even with average petrol prices up nearly 60 per cent year on year, record numbers of consumers were expected to drive 50 miles or more from home over the July 4 weekend, according to the AAA, the US automobile travel group.

The return to workplaces is also boosting sales of clothing that people did not need at home.

“People need to rebuild their wardrobes,” said Scott Baxter, chief executive of Kontoor Brands, which owns Lee and Wrangler jeans. “Our product means you’re going back out.”

“Consumers are still willing to spend in most places that they haven’t been able to do it for two years,” said Ken Perkins, president of Retail Metrics, an industry analyst.

Over the longer term, however, that impetus may not offset the pressure from inflation. Perkins said his 22-year-old son complained that he had just spent $74 to fill his car — double what it cost last year.

“That’s money that he normally would have used to go out and spend in restaurants and other places,” Perkins said. “You multiply that across the country . . . [and] that can’t bode well for retail spending.”



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