What we know about the consumer so far

The state of the consumer in 2024 is already taking shape, even before the country's major retailers begin reporting their first-quarter earnings, starting with House deposit and Walmart next week.

There are signs that the American consumer is continuing to spend, especially on experiences. But persistently high prices are putting pressure on lower-income consumers, putting pressure on everyday purchases and corporate profits.

Generally speaking, credit card companies like American Express, Visa and MasterCard have described spending trends as “relatively strong,” “relatively stable,” and even “healthy.” Payment companies like PayPal and Block We are still seeing strong transaction volumes and payment growth.

Airlines and hotels are expecting a strong travel season, especially when it comes to international destinations, with Morgan Stanley Michael Wilson notes that “one-third of consumers prioritize travel over other discretionary purchases and services.”

In fact, a Morgan Stanley survey showed that 60% of American consumers are planning a summer vacation this year, and nearly half of those who travel expect to spend more than they did last summer.

Priceline Father Stock Reserves told analysts there are no signs that consumers are taking shorter vacations or reducing their hotel options. Caesars said overall spending remains strong at its Las Vegas resort casinos.

What's more, cruise lines are seeing record bookings, even as prices have skyrocketed. Passengers also spend freely on board ships, despite having to pay much more for food and drink.

Concerts also continue to be hot tickets, even at very high prices, with living nation saying that “there is no problem in fan demand compared to last summer” and that “global fan demand is stronger than ever.”

But the picture is different when it comes to more discretionary items and everyday purchases, as consumers appear stingier due to economic headwinds such as high food costs, rising mortgage rates and fewer government refunds.

As an online craft market Etsy In other words, “consumers' wallets remain tight, so there is often little left after paying for food, gas, rent and childcare.”

Consumers have been delaying major home purchases amid economic uncertainty, which could be a key factor to consider when Home Depot and Lowe's report this month's results.

fair waywhich reported results on Thursday, told analysts that the most expensive category “remains weak” and it is unclear when demand for home furnishings will improve. Stanley Black & Decker issued a similar warning, saying that “weak consumer and DIY demand” has been the result of “some levels of hesitancy on the part of the consumer and any end-user on the more expensive items.”

WhirlwindIt has also experienced difficulties in sales of household appliances. AND Swimming pool corporation. — one of the nation's largest distributors of pool supplies — said that while pool maintenance spending is “stable,” pool construction and more discretionary purchases were weaker due to high interest rates.

Consumers have also become more demanding about how often and where they dine out. Restaurant sales in the quarter largely disappointed Wall Street amid traffic problems.

starbucks Chief Executive Laxman Narasimhan told analysts: “We continue to feel the impact of a more cautious consumer, particularly with our more casual customer. And a deteriorating economic outlook has weighed on customer traffic, an impact that is widely felt. throughout the industry. McDonald's He added that “the consumer is certainly being very demanding in how they spend their money.”

What has become clear this earnings season is that American consumers are increasingly price sensitive, especially when it comes to everyday purchases. Bank of America Savita Subramanian notes that “fissures in consumption are emerging,” especially among lower incomes.

These are just some of the companies warning about price sensitivity:

• Both Coca Cola and PepsiCo We have seen behavioral changes in value-seeking consumers, particularly at the lower end.
• meat producer Tyson Foods told analysts that built-up inflationary pressures have “created a more cautious and price-sensitive consumer” and that it is experiencing “a small slide toward private labels among low-income households.”
• Hershey said it continues to see “value-seeking behavior from consumers.”
• Owner of Special K and Pringles Kellanova experienced a 5% decline in North American volumes amid elasticity pressures as a result of prices being 5% higher than a year ago.
• Father of Burger King and Popeyes Restaurant brands noted, “We've seen consumers become a little more price sensitive, which has resulted in a moderation in check growth.”
• Footwear and clothing manufacturer Steve Madden He bluntly said, “We see a customer who is still price-sensitive,” and noted that its outlet stores have outperformed its full-price business.

Low-end consumer weakness could pose problems for discounters like general dollar and dollar tree as well as off-price retailers such as TJX, Ross Stores and Burlington Stores when everyone reports earnings in the coming weeks.

Amazon succinctly describes the new normal: “Customers are shopping but remaining cautious, lowering prices when they can and looking for deals.” Etsy shared the same sentiment: “Consumers are feeling really pressured and so they're looking for value, deep discounts, and great deals.”

As a result, companies are now forced to compete for consumers' money through promotions and offers. Some have been successful at least in the short term.

beaten hut said its sales improved from February to April thanks to effective promotions and offers. domino said its revamped loyalty program has helped sales. Taco Bell's value menu has encouraged guest visits.

While there is growing pressure on businesses to lower prices to win over consumers, persistent inflation in the costs of food, energy, labor and other inputs poses a major hurdle to the profitability of restaurants, retailers and businesses. of consumer products alike.

Most companies have already seen a slowdown in pricing power in recent quarters, partly due to the more challenging demand climate and partly because prices are already at very high levels.

Shake Shack said it raised prices in mid-March, but executives told analysts they have “no current plans to raise prices further this year.” That decision was made even though they “expect inflationary pressures on wages, food and paper to persist.”

With a greater focus on promotions, profit margins will be under more pressure. Look at Starbucks, which posted margins that missed Wall Street estimates and were down compared to a year ago. One of the reasons cited in its earnings report for the disappointing margin performance: “increased promotional activities.” Add to this weak traffic and it's a recipe for problems.

Ultimately, as companies face greater pricing pressure in the future, they will likely have to resort to further cost cuts or effective cost management to help preserve their profit margins in the coming quarters.

Get ready for an intriguing retail earnings season in the coming weeks.