Cash-strapped consumers add to retail pressure

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So much for the “roaring Twenties”. We report today on how US retailers have ditched their forecasts of a post-pandemic boom as the economic outlook darkens.

The strong housing market, soaring stock prices and low interest rates of last summer have been replaced by rising rates, a bear market and inflation at a 40-year high, leading to consumer sentiment at its lowest level since first tracked by the University of Michigan in 1952. Markets are increasingly contemplating the possibility of a recession.

The downturn in sentiment masks a “bifurcation” of consumers, with demand for premium products holding up at the same time as budget items, whether it’s pricey charcuterie at one end and Spam at the other, or high-end beauty products and “entry-level” cosmetics.

Squeezed consumer demand is also in evidence at big UK retailers.

Cutbacks in spending on big-ticket items such as technology and furniture at its Argos chain dented quarterly sales at UK supermarket J Sainsbury. There was also evidence of customers trading down on groceries, with rising sales of cheap own-label products and those price-matched with discounter Aldi.

“There’s a lot of pressure in the system at moment, commodity prices are higher, fuel is higher, labour, fertilisers . . . this pressure has been in the system for a while, progressively building up,” said Sainsbury’s chief Simon Roberts.

Rival Tesco, the UK’s biggest supermarket chain, is embroiled in a row with Mars Petcare over the price of catfood in the latest sign of how inflation is hurting relations between retailers and producers. Tesco has also had a spat with Heinz over beans and ketchup, saying that “now more than ever we have a responsibility to ensure customers get the best possible value, and we will not pass on unjustifiable price increases”.

“The pace of reversal in customer tastes in a weakening economy has been head-spinning,” says the FT’s Lex column, analysing the downward path of US homeware chain Bed, Bath and Beyond as it seemingly heads towards bankruptcy, having already disposed of its chief executive after a 25 per cent drop in sales.

The world of ecommerce is also experiencing tough times. TikTok yesterday abandoned plans to expand its live shopping experience in the US and Europe after suffering from technical problems and a lack of traction with consumers. Livestream commerce, where brands and influencers broadcast live and sell products through clickable links, is seen as the future of shopping by social media platforms, and has had considerable success in China.

US online sales have dropped from 17 per cent of total transactions to 14 per cent over the past year, severely denting the ambitions of ecommerce companies such as Shopify, which last year was briefly Canada’s most valuable public company but has since experienced a plunge in its share price of 80 per cent. Similar pressures are affecting UK online retailers: white goods supplier AO World today announced moves to strengthen its finances after its share price halved over the past few months.

Corporate ambitions have also taken a hit from uncertainty in financial markets. Walgreens had to abandon its sale of Boots after failing to receive any adequate bids for the UK pharmacy chain. The company still has some 9,000 stores in the US but owning physical drugstores is not the cash cow it once was, the Lex column noted, as margins on prescription medicines are squeezed by cheaper generics and pressure to cut prices.

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Zahawi has a tough task ahead. The Bank of England yesterday said the UK outlook had “deteriorated materially” as it published its semi-annual financial stability update. Prime minister Boris Johnson meanwhile was accused in a parliamentary report of overselling the benefits of post-Brexit trade deals.

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Global latest

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Need to know: business

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