Impact of Retail Economics

With most Q2 results in, we’re getting a picture of retail performance. 🔄 A bit like in Uno, the reverse card is being played. Some retailers that have been performing badly are starting to see declines bottom out or are moving into modest growth (think Best Buy, Target, Foot Locker, Peloton, Victoria’s Secret, Gap). 📉 In contrast, some of the traditional star performers are struggling to keep up the fast pace and are seeing a slowdown (think Lululemon, Ulta, Dollar General). 💰 Are economic dynamics playing a role here? Partly. But strategy and competitive forces remain critical. Ulta has more competition, so too does Lululemon which failed to inspire with its womenswear in Q2. Target has recently invested a lot in price and value. Foot Locker, Victoria’s Secret and Gap all have turnaround programs. 🤔 On this front, don’t always buy the narratives retailers spin. Dollar General blames its weaker numbers on pressures on its customers. There is truth in this, but it has been true for a long time. The issue now is that inflation is not flattering the growth as much and there is more price competition in grocery. Oh, and some stores are terrible and are preventing sales and repeat visits.  🖼️ The long-term picture remains vital because quarterly results fluctuate and create noise. An example is Nordstrom, which has 3.4% growth this quarter, versus Dillard’s which has a 4.9% decline. Look at the Q2 numbers compared to 2019, and Dillard’s has grown sales by 4.4% while Nordstrom’s sales have grown by just 0.2%. A long term view is sometimes a better signal of the health of the business model. 🏡 Home related categories remain very pressured. A lot of this is linked to the more sluggish housing market: moving is an important driver of demand. Some bigger ticket purchases are financed, so high interest rates play a role too. ↔️ The market remains polarized with a balance of winners and losers. Out of the selection in the graph below, 17 retailers are in growth and 18 are in decline. 🐌 Growth rates have, generally, deteriorated since Q1. From the retailers shown below, 21 have lower growth rates than in Q1, 14 have higher growth rates. The average, overall growth rate has dropped by a modest 0.5 percentage points since Q1. So no recession, but some modest slowdown. #retail #retailnews #earnings #consumer #economy #shopping

📢 If you work in payments, your LinkedIn feed has probably been FLOODED with posts about Visa’s new VAMP rules. What Visa’s new #VAMP rules mean for every merchant Visa is merging its fraud and chargeback monitoring into one program: the Visa Acquirer Monitoring Program (VAMP). Simpler, yes. Easier, no. Starting April 2025, merchants must keep total disputes (fraud and non-fraud) below 1.5%. By January 2026, the threshold drops to 0.9%. Acquirers face even stricter rules, needing to maintain dispute rates under 0.5%. A major change involves Rapid Dispute Resolution (RDR). Previously, RDR cases didn't count against dispute ratios. Now, under VAMP, they do. Merchants lose a vital tool for managing chargebacks proactively. This shift impacts every merchant. Subscription businesses, digital goods providers, and high-risk sectors will face more scrutiny. Costs may rise as fines for excessive disputes become real. Merchants previously dependent on RDR must now develop alternative strategies. Clearer billing practices are essential. Robust fraud prevention tools are no longer optional. Enhanced customer communication is critical. Businesses must adapt quickly to these new requirements. Visa's message is clear: payment risk management now involves everyone. Staying compliant means actively reducing disputes. Transparency and proactive customer engagement will become the new standards. But questions remain. Will Visa’s VAMP truly enhance payment safety? Or does it simply add complexity and cost for merchants? How is your business preparing for the new rules? Do you see VAMP as beneficial or burdensome? Share your thoughts.

🚨 Big change in payments today — and many merchants won’t realize the impact until it’s too late. As of April 1, Visa has officially tightened its monitoring thresholds under VAMP. 📉 The “excessive” threshold dropped from 2.2% → 1.5%That’s not a small tweak — it’s a ~32% stricter limit overnight. 💡 What this means in practice:• Merchants previously in the “safe zone” may now be at risk• Fraud + disputes are now combined into a single metric• Less room for error, faster escalation, and real financial consequences ⚠️ The bigger shift?This isn’t just about compliance — it’s about control. Acquirers are under tighter pressure too, which means:👉 More scrutiny👉 Faster account reviews👉 Lower tolerance for risk 💬 If you’re in eCommerce, subscriptions, or high-volume payments, now is the time to ask:“Do I actually know my real fraud + dispute ratio?” Because waiting until you get flagged is already too late. #payments #ecommerce #fraudprevention #chargebacks #fintech #riskmanagement

How healthy is the U.S. consumer? So far through 2023, consumers’ spending has defied expectations and remained robust despite high rates of inflation. This then raises the question: how much will the consumer spend at retailers as we move into the critical Q4 period? The chart below attempts to provide some guidance by adjusting the monthly retail sales data for inflation using the CPI for commodities (a permanent FRED link to the data used in this chart can be found at https://lnkd.in/gDADwQSD). Data run through August of this year. Thoughts. •In this chart, I’ve plotted seasonally and inflation adjusted retail trade sales and included the 2014 – 2019 trendline (estimated using SOLVER in Excel using Ordinary Least Squares). •Looking at the pattern, we see the surge above the trendline starting June 2020 when consumers came out of COVID-19 lockdowns with stimulus money and fewer chances to spend on services, so America goes shopping. That behavior was supercharged starting March 2021 with stimulus round 3. Subsequently, retail sales have flatlined since about July 2021, which is a substantial change from the upward pre-COVID trendline.  •In terms of forecasting Q4 2023, my expectation would be for inflation adjusted sales to come in around the levels we saw last year given the flat trend (and possibly down a percent or two given the economic uncertainty, resumption of student loan payments, and higher interest rates). •There is no evidence yet of a collapse of retail sales like we saw in Q4 2008, where inflation adjusted retail sales dropped ~8% from Q4 2007 levels (see https://lnkd.in/gFWeC9fm). •These data likely explain, in part, why containerized imports remain above 2019 levels (https://lnkd.in/gcacg7Kf). Implication: there are no signs yet that consumer spending at retailers is set to fall sharply (certainly nothing like we saw in 2008). All data points towards this holiday season having sales volumes around where they were last year (and maybe down one or two percent). #supplychain #supplychainmanagement #shipsandshipping #ecommerce #freight #trucking

📊 US consumers increasingly running on fumes 💸 Consumer spending rose a seemingly healthy 0.5% m/m in February, but make no mistake, households are increasingly running on fumes. Adjusted for prices, real spending rose just 0.1%, with the composition of outlays pointing to growing caution. Spending rotated away from tariff-impacted and higher-priced goods, while services outlays remained subdued. 🔍 The details underscore a clear rotation. Inflation-adjusted durable goods spending rose a strong 0.9% m/m following a 1.4% decline in January, but excluding the 4.3% surge in vehicles (after a 4.2% plunge in the prior month), durable goods spending fell 0.4%, with weaker outlays on furniture and recreational goods. Nondurable goods spending declined 0.2% in February, as modest gains in clothing were offset by lower spending on groceries and gas. Real services spending rose just 0.1%. 📉 Personal income fell 0.1% in February, reflecting soft compensation growth, a sharp drop in dividend income and lower government social benefits. Disposable personal income also declined 0.1% m/m, as personal current taxes were unchanged following a 3.1% drop in January tied to larger refunds from the One Big Beautiful Act. Adjusted for inflation, disposable income fell more sharply, down 0.5%. 💳 With spending outpacing income, the personal saving rate dropped 0.5ppt to 4.0% –which, excluding post-pandemic swings, is tied for the lowest level since 2008. 📈 Looking at the broader trend, real consumer spending has firmed to a 2.5% y/y pace, but the income foundation remains fragile. Real disposable income growth has slowed to 1.1% y/y and has trailed spending since July 2024. This highlights that the resilience in spending is being sustained through tighter budgeting and greater selectivity, not stronger income growth. Increasingly, spending is being supported by a drawdown in savings, greater reliance on credit, and wealth effects. These relief valves are inherently limited, particularly heading into an oil shock. With job growth near zero and wage growth easing, one should anticipate soft income for the rest of the year. 🔥 Inflation pressures firmed in February, largely reflecting tariffs. Headline and core PCE prices both rose 0.4% m/m. On a year-over-year basis, headline PCE inflation held at 2.8%, while core inflation eased slightly to 3.0%. Notably, the 3-month and 6-month annualized measures have begun to reaccelerate ahead of the Middle East-driven energy shock. 🔮 Looking ahead, we expect an energy- and food-driven price bump to push headline PCE inflation toward 4%, with core PCE temporarily rising toward 3.5%. We have raised our year-end 2026 forecast to 3.0% y/y for headline PCE and now see core PCE ending the year around 2.8%. via EY-Parthenon EY

Consumers Pull Back Spending as Core Inflation Creeps Up May’s PCE report just landed with a thud! At a time when the Federal Reserve is looking for disinflation momentum, the data showed the opposite: inflation remains stubborn, and consumers are beginning to retreat. Core PCE (the Fed’s preferred inflation gauge) rose 0.2% month over month, hotter than expected. Year-over-year, it ticked up to 2.7%, moving further from the Fed’s 2% target. Headline inflation held steady at 2.3%, but there’s little indication of downward momentum. The bigger story, however, may be the consumer slowdown. Personal income fell 0.4% in May. Disposable income dropped 0.6%. Real consumption declined 0.3%, marking the sharpest monthly pullback since last fall. Households spent less on goods (down $49 billion overall) with only a modest offset from a $20 billion rise in services spending. One of the most striking declines came in motor vehicles and parts, which plunged more than $40 billion in a single month. This data comes from the Bureau of Economic Analysis as part of its monthly Personal Income and Outlays report. The PCE (short for Personal Consumption Expenditures) is not to be confused with CPI or PCI. It is chain-weighted to reflect how consumers shift behavior in response to price changes and is favored by the Federal Reserve for that very reason. It captures not just what things cost, but what people actually do in response. For the Fed, this report complicates the path forward. Inflation is not coming down quickly enough to justify immediate rate cuts, yet the economic engine powered by household consumption is showing signs of wear. The drop in income was driven in part by reduced government transfer payments (especially lower Social Security payouts) but the underlying tone of the data suggests softness beyond that. Private-sector wages still rose 0.4% for a second straight month, which implies the capacity to spend is there. The pullback, then, appears more behavioral than circumstantial: consumers are choosing to hold back. That shift will ripple through supply chains, retail inventories, and pricing dynamics in the months ahead. There’s an old idea that consumers can spend their way out of a slowdown. But in May, they didn’t. With inflation still elevated and household budgets under pressure, the Fed may have no choice but to keep rates steady into the fall. The longer that inflation stays sticky while consumption slips, the more complex the policy tradeoffs become. At Havas Edge, we track PCE not just because understanding what people earn, how they spend, and where they pull back gives us advance warning of demand shifts, pricing sensitivity, and message receptivity. #PCE #fedinflation #useconomy

Inflation-weary consumers are facing some new headwinds with word that companies are starting the year by passing through new price increases. The Wall Street Journal reports that after a period of holding the line and leaning on discounts late last year, many businesses are raising prices again, pointing to higher tariffs, labor costs, and health-insurance premiums as major drivers. This “real world” inflation doesn’t show up all at once in a single CPI print as we saw last week. But the risk is that it keeps pressure on the everyday cost of living over time. What does it mean for consumers? Even as inflation has cooled from its peak, affordability challenges are not going away. Price levels are broadly high and going higher, with the CPI up 26% from January 2020. New price hikes on clothing, appliances, and household goods can make it feel like the finish line keeps moving. In other words, disinflation is welcome, but it doesn’t automatically translate into relief when the items you buy and replace in normal life start climbing again. For the Federal Reserve, this is exactly the kind of backdrop that supports staying put with its benchmark short-term rate. The Fed can tolerate some “one-time” price adjustments, but policymakers worry about what comes next: higher input costs leading to broader price increases, then feeding into wage demands and service-sector inflation. That is how inflation becomes sticky. If companies regain pricing power, it makes the Fed less likely to cut rates quickly, because the risk is that inflation stops cooling and settles in above target. This is also why affordability is likely to remain front and center in the public conversation this year. Look for the president to try to address it in next week’s State of the Union. Ahead of this year’s mid-term elections, as voters talk about the economy, they don’t talk about the CPI. Instead, they mention whether the costs of groceries, housing, insurance, and basic household items are or are not manageable. And if businesses are raising prices again, that affordability pressure becomes harder for elected officials to ignore. Bottom line: inflation progress has been real; price levels generally continue to rise. The next phase may be choppier. Consumers should plan for a world where prices rise more slowly than they did in 2021–2022, but where affordability still feels tight, and rate cuts, if they come, are more likely to be gradual than rapid. Our advice for individuals and households is to prioritize paying down high-cost debt, focus on boosting income where possible, and to prioritize saving for emergencies while utilizing high yield savings accounts.

Wages and benefits are up, inflation and interest rates are down, and real incomes have been rising in the UK for almost 18 months now... But consumers aren't spending, and PwC UK's latest survey finds the *biggest quarterly decline* in consumer sentiment in over 2 years. Is the UK in a "#vibecession" like our US brethren seem to be? Some of my thoughts below, or read the full report: https://pwc.to/48mI0rA First of all, why does it matter? I've been running PwC UK's consumer sentiment survey since 2008, and the main index number has historically been a reliable predictor of actual household spending 6-12 months later (with an R-squared of +0.7 for you statisticians!). Sentiment has been recovering steadily since a low in Sep 2022... until now. In fact, as with previous changes of government, July's survey, taken directly after the General Election, saw #consumersentiment climb to its strongest level in 3 years. However, our latest September survey (https://pwc.to/48mI0rA) shows the biggest quarterly decline since the start of the Ukraine War, worse than after the Truss mini-budget of 2022. The new government's honeymoon is most definitely over in the eyes of consumers. The biggest decline in sentiment in the last quarter was amongst over 65s. For the first time in over 8 years, #pensioners are now the most pessimistic demographic group, reversing over a decade of improving sentiment amongst older people. The end of the universal Winter Fuel Allowance has had a *direct impact* on the sentiment of retirees. Meanwhile, the sentiment of under 35s actually rose - slightly - but no more than it normally does every September. Weak sentiment has been reflected in #consumerspending. According to the BRC, quarterly non-food retail sales have been in decline every month for over a year now. As MPC member Megan Greene pointed out in her Financial Times column earlier this week (https://lnkd.in/dUQA_3HF), UK consumption is just 1.5% above pre-pandemic levels vs 13% in the US. UK consumers are saving, but not spending. This fall in sentiment and continued aversion to spending is bad news for #retail and #hospitality as we enter their Golden Quarter. Christmas spending propensity amongst consumers has fallen since the summer, and is now no better than it was last year - 27% of us think we'll spend less this Christmas, compared with only 18% saying they'll spend more. Will the improving macro environment and more certainty after the Budget be enough to turn the tide? Whatever the Chancellor unveils next week, consumer sentiment looks to have peaked, and is now falling again. For retail and leisure operators, that means the critical run-up to #Christmas hangs in the balance. Where will the brighter spots of higher spending be? Read our prognosis in PwC UK's latest consumer sentiment report here: https://pwc.to/48mI0rA

Spending Falls, Inflation Rises: "Smells Like Stagflation Spirit" May’s spending, income and inflation data from the Bureau of Economic Analysis offered the clearest signs yet of tariffs weighing on the U.S. economy. Consumer spending declined noticeably, following months of front-loaded purchases ahead of expected tariff hikes. Even as demand cooled, inflation continued to edge higher—an early signal of stagflation, the combination of slowing growth and rising prices typically triggered by a supply shock. While inflation has remained within a tolerable range over the past three months, we don’t believe the full effects of tariffs have yet played out. Many businesses have so far absorbed higher input costs by leaning on inventories rather than passing them along to consumers. That buffer may soon erode. We expect increased price volatility over the next three to six months as firms begin restocking at higher, tariff-inflated prices. The Federal Reserve has signaled the possibility of one or two rate cuts this year. But more data will be needed to determine whether inflation pressures are truly under control—or just delayed.

Inflation – all consumers are not equal Inflation has caused much consternation across the world. India’s retail inflation, rose to a 15-month high of 7.44% in July 2023, (vs 4.81% in June) on the back of very high vegetable prices. While some vegetable prices have begun to cool off a bit, relief from inflation is still a while away as the threat of #ElNino and a #monsoon deficit still pose huge challenges. However, the average #CPI number still hides a lot more than it reveals. All consumers are not equal as there is a huge inter-state variation. For eg consumers in four states ie Rajasthan that recorded the highest inflation rate of 9.7% followed by Manipur, Jharkhand and Tamil Nadu respectively with inflation rates of 9%+ & had to bear the brunt of rising prices. Out of 22 states, at least 14 had 7% plus with only Delhi, Assam, J&K & West Bengal having inflation rates <6%. Similarly, rural folks had to bear a higher inflation rate than their urban counterparts due to fuel price differences, food basket composition and structural problems such as poor infrastructure leading to bottlenecks in responding to supply shortage in food items. Inadequate distribution channels hinder bringing in vegetables and oilseeds to rural areas. Inflation is higher in rural areas, not just for fuel and food, but for core products too. Inflation has a big bearing on growth as people can tighten their purse strings. Lower demand can certainly slow economic growth and could reflect in the fall in rural India's growth potential. Hence, a host of non-monetary steps will be needed to cure the inflation problem esp on the food side. The govt has taken a slew of measures including the use of duties, stockholding measures, regulating exports & imports, Pradhan Mantri Kisan Sampada Yojana, PLI for food products etc but a lot more needs to be done. Centre-state coordination is the 1st step. More private entities should be encouraged to tap into the huge market in the commercial agro-storage business. It is imperative to bring down logistics costs by investing in upgrading & modernizing physical infrastructure. The other issue relates to the measurement of inflation where an updated retail inflation series is needed that not only a/c for changes in consumer behaviour but also addresses issues plaguing the construction and computation of the index. The current CPI inflation series is based on the 2011-12 Consumer Expenditure Survey (CES). The survey is used to revise the base year of the CPI series and also the basket of goods and services – and their weights – for which prices are to be measured. However, the next CES & incorporation of findings may take until 2025- 2026 to be completed. Since monetary policy is forward-looking, the #MPC depends on the forecasts incl from the #RBI while making decisions. And if actual inflation keeps deviating wildly from forecasts, policymaking becomes more difficult. #inflation #monetarypolicy #fiscalpolicy #foodprices.