- Consumer spending on goods softening further, trade-down is apparent, and consumers are buying closer to need. The consumer malaise that became more evident this week doesn’t appear to have any geographic concentration and the California banking crises appears to not be an issue for that region. The consumer is just getting worn out by higher prices on everything: food, insurance, rent, repairs, vacation travel, etc. Additionally, pandemic pull-forward effects continue to be revealed as larger than was realized, be it large flatscreen TVs, washers & dryers, or casual athletic footwear. Households have plenty of these goods. Retailers reporting this week said that consumers are shopping closer and closer to need and only when prices reflect deep value. To our eyes, deflation in non-consumables goods appears imminent.
- Visitation trends continue to moderate. Placer.ai's visitation data has been relatively consistent with monthly retail sales trends; namely, March represented a step-down from February, April saw further declines year-over-year, and May trending in a similar fashion. These trends were consistent with commentary from Walmart, Target, and Home Depot.
- Wage pressure is still an issue for earnings. Starting wages are in the $15-$24 per hour range across the country and paying for college tuition is becoming a common benefit for retail store, distribution center, and fulfillment center employees. However, it sounds like retailers reporting results this week have gotten turnover to a manageable level.
- Theft is worsening. Theft had a meaningful impact on retailer results during 1Q 2023 and it is clearly a large frustration to management teams. We suspect that some of the issued is rooted in economic reasons (i.e., not enough money to eat). Recall our earlier story about food bank traffic.
- Even the best positioned retailers are feeling some pressure. Lastly, what struck us in these reports is that the reporting retailers are some of the most successful, well-resourced, well-managed, fully omnichannel, advantaged operators in the country and their profits are being substantially hindered by slowing consumer spending, ridiculous levels of theft, and high business cost inflation. For less advantaged retailers, 2023 is going to be a very challenging and risky year.
