The Effects of Changes in Consumer Damages on Sellers | So Good News


US consumers are expected to reduce spending in late 2022 and 2023 due to lower consumer spending, rising fuel and energy costs, rising household debt, and lower savings, according to the 1H 2022 BDO Retail in the Red. Report.

These factors, combined with years of rising commodity prices and rising interest rates, could cause financial difficulties for some retailers.

Consumer spending and sentiment often have a positive correlation, so a decline in consumer sentiment indicates that consumers are planning to cut back on spending in the near future. Interest rates, although rising since their June lows, are still similar to those seen during the Great Depression.

Although natural gas prices have fallen since they peaked in mid-June, they rose by 18.2% in the 12 months to September, while the total energy consumption figure rose by 19.8%. Americans are now paying more for housing, energy, food and other essentials.

As a result, US consumer spending, which consists of more goods than services, was unchanged from August to September. Interestingly, when gas and food prices went up, consumer spending went down – indicating that consumers don’t have much to do to ease the financial burden without spending a fortune on the household.

A lot of consumer credit is adding to these issues. US household debt, which includes mortgages and credit cards, rose by $312 billion (2%) to a record high in the second quarter of 2022.

Meanwhile, credit card spending rose by $46 billion to $887 billion, a 13% increase from Q2 2021 – the highest increase in more than 20 years, according to the Federal Reserve Bank of New York. As consumer debt increases, personal interest rates decrease. The Bureau of Economic Analysis reported that consumer spending was 3.1% in September, up from 3% in June, which was the lowest in 14 years.

After the Fed’s recent rate hike, interest rates are now at 3%-3.25%—the highest since 2008. The average rate for a 30-year fixed-rate loan with a 5/1 ARM is 7.2%

and 5.44%, respectively (according to Bankrate). Consumers with adjustable rate mortgages and credit card loans will spend more on interest payments in the coming months through 2023.

Since many consumers have also spent more of their savings, they will soon have limited spending options, and will not be able to continue spending beyond their limits. This can be tough

budgets such as money and credit are running out and consumers are no longer able to spend as much as they can.

As a result, we expect that retailers, especially those that are struggling, will have to withdraw more money to meet their sales goals, destroying their profits in the second half of 2022 and 2023. Retailers will be competing with buyers’ wallets during the holiday season – their most difficult time of the year – as consumers increasingly trade up to pay higher prices.

A recent study by Bankrate revealed:

  • 40% of consumers believe that inflation will affect their holiday shopping decisions;
  • 84% plan to find ways to reduce the cost of their purchases;
  • Plans have been made to use credit for their holiday purchases; and
  • More than a quarter will go into debt to pay for the holidays.

Many retailers are already facing more challenges after over-ordering during periods of inventory shortages, having seasonal products delivered late or seeing consumer preferences change.

In addition, some retailers will begin offering discounts a few weeks before Black Friday and/or reducing their sales and availability in the second half of 2022.

Retailers who are unable to compete effectively in these areas and who have too much debt can find themselves in financial trouble. Debt increases when interest rates rise, and this can force retailers to take cost-cutting measures, such as layoffs or store closures.

Due to rising inflation and macroeconomic headwinds, the most vulnerable retailers are expected to be those that sell to middle and low-income consumers, sell predictable products, and have weak portfolios. We expect that the recession at the end of the year 2022 to 2023 may lead to the closing of shops and the end of money, but maybe not as hard as the coming years, including, the epidemic.

As consumers are forced to cut back on purchases, retailers will need to be more vigilant in creating sales and marketing to ensure they get their share of the shrinking consumer purse.

Retailers will also carefully monitor consumer spending and sales patterns when making decisions about how much and when to order in spring and summer 2023.


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