The state of the consumer in 2024 is taking shape even before major retailers report first-quarter earnings. Signs show that U.S. consumers are still spending on experiences, but high prices are squeezing those with lower incomes. Credit card companies have described spending trends as relatively strong, stable, and healthy. Payment firms like PayPal and Block are also seeing strong transaction volumes. Airlines and hotels are anticipating a strong travel season, with one third of consumers prioritizing travel. A survey showed 60% of U.S. consumers are planning a summer vacation, with record bookings seen in cruise lines and concerts.
However, when it comes to more discretionary items and everyday purchases, consumers appear more tight-fisted due to economic headwinds like elevated food costs and rising mortgage rates. Online artisan marketplace Etsy noted that consumer wallets remain squeezed after essential expenses. Consumers have been delaying large purchases for their homes amid economic uncertainty. Companies like Wayfair and Stanley Black & Decker have reported weak demand for home furnishings. Whirlpool and Pool Corp have also experienced struggling sales. Consumers have become more discerning with how often or where they dine out, leading to disappointing restaurant sales.
U.S. consumers are increasingly price-sensitive when it comes to their everyday purchases. Companies like Coca-Cola, PepsiCo, Tyson Foods, and Hershey have observed behavioral shifts in consumers seeking value. Burger King, Popeyes, Steve Madden, and others have noted that consumers are becoming more sensitive to price. This could pose issues for discounters like Dollar General and Dollar Tree as well as off-price retailers. Companies are now competing for consumer dollars via promotions and deals, with some finding near-term success through effective strategies.
As a result of price sensitivity, companies are being forced to compete for consumers’ dollars through promotions and deals. Some have seen success in the near term, but inflation in food, energy, labor, and other input costs poses a major hurdle to profitability. Companies have already seen decelerating pricing power in recent quarters. Shake Shack raised prices in mid-March but said they have no current plans for further price increases this year. With a greater focus on promotions, profit margins will be under more pressure. Companies will likely have to rely on cost cuts or effective cost management to preserve profit margins in the coming quarters.
Overall, the retail earnings season in the coming weeks is expected to be intriguing as companies navigate the challenges of price sensitivity and economic headwinds. Despite strong spending on experiences like travel and concerts, consumers are holding back on everyday purchases. Companies will need to find a balance between attracting consumers with promotions and maintaining profit margins in the face of inflation and economic pressures. It will be essential for companies to adapt to the changing consumer landscape in order to succeed in the current economic environment.
