Clothing retailers have good reason to be worried as the peak year-end season approaches.
Data suggests that people might not be spending as much on soft goods products such as home textiles and apparel in the coming months. According to UBS market research from September, spending intentions for soft goods over the next 90 days fell 3.5 percent from a year earlier.
“Our view is the coming slowdown is just one step of a multistep process which will play out over the next 6-12 months,” UBS softlines and retail analyst Jay Sole wrote in a research note.
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The investment bank’s data points to shoppers planning to cut their apparel spending and buy less stuff in general. People also seem to be putting off buying new clothes more than they did a year ago. They’re increasingly aware of apparel and accessories getting more expensive.
According to former NPD analyst and current Spurwink River head Matt Powell, the footwear business is “pretty challenged” right now. Other than Hoka and New Balance, shoe brands, in Powell’s view, will be “promotional” this holiday to clear through the “old inventory” still hanging around. The same goes for an activewear category suffering from a lack of newness, he said.
In the UBS survey, people said higher prices are dragging down their standard of living. They plan to hit sales hard this holiday, purchase cheaper store brands, take fewer shopping trips and stick closer to home, likely to save on fuel and transport costs.
In fact, a good number of people will spend less this holiday. The number of those who feel this way “jumped 840 basis points” from July’s UBS survey. There was just a 340 basis point increase in those who say they’ll spend more, suggesting consumers have a dim outlook on economic prospects.
That’s what the latest Conference Board Consumer Confidence Index found, too. It declined in September to 103.0 from August’s upwardly revised 108.7. The Expectations component measuring the near-term outlook fell for the second straight month to 73.7 after falling to 83.3 in August. Anything lower than 80 usually signals a recession in the next year. The Conference Board expects a “short and shallow economic contraction” early next year.
Wells Fargo economists said “softer confidence could have a more meaningful negative impact on spending,” citing savings drying up and credit getting further out for reach. September’s Consumer Confidence reading marks the sharpest monthly decline since 2020.
Following the trend in recent years, retailers are rolling out the sales in early October to get a jump on holiday spending. However, this means sales in November, the traditional kickoff to the year-end season, could suffer as a result, said R.J. Hottovy, head of analytical research at Placer.ai, during Tuesday’s Coresight Research webinar.
Though Black Friday is still among retail’s top five biggest foot traffic days, “it doesn’t have the same cachet that it once did,” he said.
Amazon’s fall Prime Day deals event returns on Oct. 10-11, while Target has a week of sales running Oct. 1-7 with specials for loyalty members. Shoppers can take advantage of 30 percent discounts on women’s sweaters, denim, jewelry, accessories and shoes, and 20 percent savings on bedding and bath products.
Holiday forecasts signal a potential spending slowdown. Bain & Co. forecasts just 3.0 percent growth for November and December to nearly $915 billion, the lowest growth rate since 2018.
New Pitney Bowes research indicates that 32 percent of consumers plan to shop online more this year than last. Gen Z and millennials are less likely to cut back on online spending. Instead, “they’re ‘trading down’ to lower-priced brands and lower-value product categories as they seek to make their budgets go farther in reaction to perceived inflation,” said Vijay Ramachandran, vice president of GTM (Go-to-Market) Enablement + Experience at Pitney Bowes.
Sole at UBS is concerned about consumers whose “philosophy of spending is ‘Live for today’ because tomorrow is so uncertain.” This seems to imply the “potential for a big drop-off in spending if consumers’ income cash flow slows or credit becomes less available or less affordable,” he said.
Consumers are in for a tough go of it, according to Sole. Beyond inflation, they also have to keep an eye on what the Federal Reserve does with interest rates. Then there’s the coming onslaught of student loan repayments for many U.S. consumers, plus Medicaid benefits ending for 14 million.
Regardless of income levels, people in the U.S. plan to spend less in the near term. Those in the middle and lower-income brackets are in the direst straits. Consumers are right to be worried about their job prospects. This month, 4.8 percent of U.S. consumers said they know someone who had been laid off. That’s a 30-basis-point month-on-month increase. More than one-third, or 36 percent, expects more layoffs will hit the national workforce in the next six months.
