Article/Intelligence
Consumer Spending Fundamental Analysis: Slowing Growth, Mixed Performance, and Luxury Shifts
Credit Research: Justin Spuma, CFA, Martynas Juskys, Rucha Amdekar, William Hong Key Takeaways Overall consumer spending, as indicated by aggregate company revenue of those companies exposed to consumer spending, has trended back to a steady, low-growth environment. However, within consumer categories, apparel, retail and home goods have experienced persistent negative growth while leisure and autos have offered resilience and strength. Our analysis indicates a clear divide between luxury and economy-priced goods and services, with the former consistently outperforming. Bifurcation in apparel shopping within the middle segment of consumers either trading up or down has led to outperformance for luxury and off-price retail. However, the third-quarter 2024 luxury revenue decline could indicate consumers reallocating purchases to certain leisure activities and/or searching for bargains. Retailer margins have held steady even as retailers are forced to discount, with operating costs benefiting from lower freight and shipping as well as lower inventory positions. Results indicated a strong move-up preference in leisure activities as luxury hotels and activities outperform. Consumers continue to increase spending on cruise ships even in the face of higher pricing, due in part to cruise lines investing in new ships and private island destinations that customers are responding favorably to. Automotive[...]