consumer spending

As retail analysts and industry consultants digest recent holiday sales that were mixed and, in many cases, disappointing, they note that 2020 will likely be more volatile from a consumer spending perspective.

In several recent reports and interviews with WWD, analysts and consultants said the retail environment will be impacted by changing economic and geopolitical forces as well as demographic shifts — notably the spending behavior of maturing Millennials, who shun large purchases and are continuing to be weighed down by student debt. With fashion apparel, analysts see the “mainstreaming” of the resale and rental segments as having the greatest impact.

[See related story: Industry and Investor Eyes on Resale’s ‘Big Three’]

Ricardo Rubi, partner and global head of consumer and retail at Simon-Kucher & Partners, a global strategy and marketing consulting firm, told WWD that consumer spending has been “fueling economic growth in the backdrop of growing recession concerns” and following the recent holiday season, “the focus is on the key headwinds to consumer spending for 2020.”

“The Fed cutting rates three times last year and slowing labor and wage growth signal to consumers, who have the 2008 crisis still fresh in their minds, to be extra cautious,” Rubi said in regard to the economic factors that will impact spending this year. “This leads to consumers taking cost-cutting measures like trading down to private-label goods, preferring off-price channels [e.g. Nordstrom Rack versus Nordstrom], and/or focusing on saving instead.”

David Reischer, attorney and chief executive officer of, said Federal Reserve policy is “the biggest potential headwind to consumer spending in 2020.”

“Interest rates are the traffic signals of a market economy,” Reischer said. “When the Fed cuts rates, they are in effect turning the traffic signals all green, and thereby incentivizing consumers to spend money, rather than save.”


If the Federal Reserve raises interest rates, some analysts see it hurting consumer spending.  Shutterstock / sjarrell

Reischer said the economy would likely “contract if the Fed raised rates and the consumer would then save his or her money and potentially earn interest income in a savings account or a money market account. [But] when the Fed cuts rates, the consumer has no incentive to save money.” He also noted that consumers also “falsely believe that the economy is much stronger than it actually is and therefore will continue to spend more money than is prudent.”

There are geopolitical factors to consider, analysts and consultants said. For example, despite the recent trade deal with China, analysts say the fluctuations in U.S. tariff policy can lead to gains in retail prices, which are further affected by ongoing tensions in the Middle East.

“In 2019, retailers and manufacturers who already explored legacy price increases provided a learning platform where we expect them to further venture with price increases in 2020,” Rubi said. And from a demographic perspective, he said the moves “toward Millennials as market leaders result in shifts in where consumers are spending. With wages not rising along with their rising debts, Millennials are preferring to not own or delaying the purchase of big-ticket items [e.g. home, car].”

There are some bright spots, though. Rubi told WWD that the maturing of e-commerce and the continued “evolution of brick-and-mortar stores — or store closures — leads to retailers leveraging a wealth of consumer data to better minimize purchase lifestyle friction and personalize to consumer needs [e.g. environmentally conscious] in order to trigger a purchase.”

Indeed, one of the underlying themes of the recent National Retail Federation show in New York was how to better use consumer data and deploy various technologies to improve the overall shopping experience.

In AlixPartners’ annual retail viewpoint report, managing directors of the firm David Bassuk and Joel Bines noted that the “teen years of this millennium were not the easiest on retail. But as with anything, the beginning of a new year is a good time to pause, take an honest look at both mistakes and opportunities, and make choices that will shape what the future may look like.”

Topping their list of trends to watch this year is a slowing of consumer spending. “
With the presidential election taking place in the U.S. and the U.K. likely leaving the European Union in 2020, political and economic uncertainty will weigh on the consumer,” Bassuk said. “We expect this will cause consumers to become more cautious and for spending to slow.”

The authors of the report noted that the highest impact “will likely be felt in the middle of the market. Discounters and dollar stores will likely continue to perform better than average — in the first four months of 2019 the top three retailers by store openings were all dollar stores.”

With luxury, they expect the segment to “keep winning, although there may be some shifting patterns when it comes to buying channels and product categories.”

At number two was an apparel segment facing growing pressure. “
A disproportionate number of recent retail bankruptcies and store closures has included specialty apparel, which continues to be oversupplied and overstored in the U.S.,” Bassuk said. “Apparel also tends to feel the impact of changing consumer tastes quicker than other product categories. We expect this rebalancing to continue into 2020, especially as circular fashion trends such as resale and rental become more mainstream with the Millennial and Generation Z consumer and corner an even larger market share.”

AlixPartners said, as a result, more “apparel stores may close or shift their focus in the coming year to accommodate these changing consumer behaviors.”


Physical stores are important, but what consumers expect has changed.  Shutterstock / ACA9595

In regard to the future of physical retail, Bassuk said the connected consumers of today “have very different reasons for going to the store than their predecessors.”

“Forward-thinking retailers must reimagine the store as the hub of a customer-centric model and relocate, resize and refresh stores with experiential aspects and services,” the authors said in the report. “Technology, especially artificial intelligence, will feature more and more in stores. Click and collect and other store pickup options will grow, potentially providing an advantage over Amazon.”

Bassuk also said 2020 “should be the year retailers implement an omnichannel view of the store, defining value not only through direct product sales, but also the other types of benefits having a physical presence provides.”

Other trends expected to unfold this year include higher price-point sensitivity where shoppers are “acutely price-conscious,” AlixPartners said, adding that “sustainability goes mainstream” in 2020.

Retail has been grappling with questions of sustainability for quite a while, but with consumers loudly demanding tangible action, this coming year might be when environmental concerns become completely mainstream for the industry,” Bassuk said in the report. “The next wave of sustainability is likely to see brands partnering with suppliers to develop more environmental manufacturing practices, in addition to using innovative and recycled materials.”

AlixPartners said businesses will need to begin “looking inward and answer the question of cost versus waste when it comes to product development practices. This may be the final impetus that leads to widespread adoption of digital sampling and design tools.”

From a personal finance perspective, experts point to a massive debt load on the shoulders of consumers. Michael Bloch, ceo and founder of Pillar, which is an app that helps consumers pay off student debt, described the student loan debt burden as the “biggest headwind” impacting business this year.

“Right now, there are 45 million Americans impacted by the $1.7 trillion in outstanding debt,” Bloch told WWD. “This influences how consumers play a role in supporting the economy. For example, student loan debt holds people back from getting married, buying their first home, and starting families.”

Bloch said student loan debt impacted the housing economy last year and looking ahead, “we’ll see how this massive burden will impact personal income and stifle entrepreneurship and career paths.” He noted that for many consumers, “their student loan repayment is like an extra rent payment each month, but until the system has a better solution, billions of dollars are being taken out of people’s pockets that would otherwise be put back into the economy elsewhere.”

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