US consumers flock to the shops despite spread of Delta variant

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America’s consumers have suffered a “stunning” loss of confidence in recent weeks, according to the University of Michigan’s latest snapshot of their mood. So far, however, leaders of the country’s biggest consumer-facing companies aren’t seeing it. 

Investors are tracking a new wave of coronavirus infections with concern, anxious that the Delta variant may derail the economy’s comeback. The OECD now shows US consumer sentiment veering away from a rising trend in other markets. 

Yet several of the country’s largest retailers told a more bullish story in earnings announcements this week. Even industries such as restaurants and travel, that suffered most in the pandemic’s earlier peaks, are wary of blaming the Delta variant for weaker recent bookings. 

Rising prices may yet have the greater effect on Americans’ willingness to shop, eat out and travel, while supply chain bottlenecks loom as large over the upcoming holiday season — the year’s most crucial test of consumer confidence. Below are five consumer trends as revealed by companies this week.

Line chart of University of Michigan Index of Consumer Sentiment showing US consumer sentiment dropped precipitously in recent weeks

Retailers are finding shoppers resilient but price sensitive 

US retail sales dropped by 1.1 per cent between June and July, but much of this was driven by a cooling car market. Walmart, Target and Lowe’s, by contrast, all lifted sales forecasts this week after beating expectations for the three months to the end of July.

While demand for toilet paper and cleaning supplies has cooled after 2020s pantry hoarding, the appetite for other products was broad-based. 

Party supplies, apparel and travel gear flew off Walmart’s shelves. At Home Depot, an early cache of Halloween decorations sold out almost immediately. Swimsuits and children’s clothing were similarly popular at Target and, in another sign of confidence, more customers returned to Walmart and Target store aisles after a year of browsing online.

“We continue to see a very optimistic consumer, certainly shopping with caution and they’re wearing masks more and more across the country, but we’re seeing tremendous resilience in the consumer today,” Brian Cornell, Target’s chief executive, told analysts. 

Richard Curtin, chief economist for the University of Michigan’s surveys, predicted that consumers would shift toward “outright optimism” once the Delta variant was under control. But the latest survey also highlighted their inflation worries. 

Complaints about rising prices for homes, vehicles and durable goods are at an all-time high, it found, with consumers’ expectations for inflation over the coming year at levels last recorded more than a decade ago.

Child tax credits are fuelling a bumper back-to-school season

Parents shopping for pens, notebooks and clothing for their children may face sticker shock as retailers raise prices to cover higher costs. Still, with some states’ classrooms already reopening, back-to-school shopping is powering large chains’ sales. 

The Children’s Place said third-quarter revenues were “off to an explosive start”, even though uncertainty over the pandemic stopped it from providing full-year guidance. Walmart similarly pointed to strong demand for school supplies helping the acceleration in the past quarter’s sales. 

The monthly child tax credits the Biden administration began distributing in July, worth up to $300 per child, seem to be fuelling that demand. In early back-to-school states, consumers who received the tax credit spent 22 per cent more last month than they did two years earlier in brick-and-mortar retailers that sell school supplies, Earnest Insights found. People who did not qualify for it spent 1 per cent less.

Restaurants are struggling to interpret an August slowdown

Traffic to reservation-booking websites, another proxy for sentiment, has been trending down since mid-July. Visits to OpenTable and Resy fell 12.3 per cent and 10.9 per cent respectively between the weeks of July 10 and August 7, Similarweb found, but it is unclear whether the variant or summer travel is to blame.

Line chart of Weekly traffic to OpenTable and Resy (m) showing A revival in visits to restaurant booking sites has stalled

“We can’t really tell if the slowdown the first weekend in August was variant-related or vacation-related,” said Laurie Thomas, executive director of the Golden Gate Restaurant Association in San Francisco. 

She was “concerned that people will pull back”, but both she and Andrew Rigie, executive director of the New York City Hospitality Alliance, expressed hope that diners would become more comfortable about eating indoors since their cities issued vaccine mandates.

“We’re continuing to see folks come in,” said Bob Luz, chief executive of the Massachusetts Restaurant Association. But if the Delta variant is not under control by November, “that’s a whole different issue”, he cautioned. “Covid just doesn’t quit, right?” 

Cancellations are feeding uncertainty in the travel industry

Companies across the travel industry have seen a Delta variant effect, but they are still voicing confidence.

Walt Disney’s parks had experienced some group and convention cancellations since the variant hit the headlines, Bob Chapek, Disney chief executive, told analysts, but their reservations remained “really strong”.

Delta’s advance had created “a lot of unknowns”, Peter Kern, Expedia Group chief executive, cautioned on August 5, pointing to rising cancellation rates and more volatility in its business. 

June had been a “high point” for the bookings company, he said, and with July looking more like April and May, it was “hard to tell how the rest of Q3 will shake out”. 

Airbnb also saw some demand pullback in July as new summer bookings passed their peak “and possibly because of the Delta variant”, Brian Chesky, chief executive, said last week. But the home rental service has not scaled back projections for the third quarter, which is expected to be its strongest yet for revenues and profits.

Stores are scrambling to make sure supply keeps up with demand

As freight costs soar and ports snarl up, retailers have another concern: will supply problems derail the critical holiday season, regardless of demand? 

Anticipating delays, many big chains struck early, ordering more toys, clothes and gifts than usual in case some did not arrive in time. Yet customers were “still seeing empty shelves on some occasions”, said John Mulligan, Target’s chief operating officer. 

Low inventories are not scaring all customers off. Home Depot’s shoppers are routinely “trading up” to more expensive tools and appliances based on what is in stock, according to Edward Decker, chief operating officer.

“We thought we bought aggressively,” said Kathryn McLay, chief executive of Walmart’s Sam’s Club, noting that the members-only warehouse chain had seen strong demand for Halloween goods and other categories. “We wish we’d bought even more aggressively.” 

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