Retailers Struggle Amid More Cautious Consumer Spending

U.K. and U.S. retailers are reportedly finding that deep discounts aren’t enough to woo consumers.

“Even the strongest and highest profile brands up and down the country are struggling,” said Julie Palmer, a partner at British consulting firm Begbies Traynor Group, told Bloomberg News in an interview published Sunday (March 24).

She cited a “difficult macroeconomic environment, reduced discretionary consumer spending, higher interest rates and renewed supply chain challenges.”

According to the report, retailers in the U.K. are suffering following a lackluster holiday shopping season, with total sales growing just 1.7% in December, compared with about 7% in 2022.

And in the U.S., consumer spending began the year weaker than anticipated, with defaults in the retail sector of the U.S. high-yield bond market jumping past 5.4% in the last 12 months, almost double the 22-year average of 2.8%, the Bloomberg report said, citing a recent report by JPMorgan Chase.

The report also noted that the last several months have seen retailers like Express and Big Lots seek rescue financing or debt restructuring, while Joann filed for bankruptcy protection.

It’s a season of “extreme bargains,” to use a phrase touted by Big Lots CEO Bruce Thorn as the discount retailer looks to woo shoppers.

“Consumers’ budgets are strained,” said Scott Friedman, chief credit officer for credit-rating and consulting firm Pulse Ratings, who noted that discounters are feeling strain as lower-income consumers cut back on what they purchase.

“They are avoiding the discretionary items and only buying what they need — which carries a lower margin for the retailers,” Friedman added. 

And recent research by PYMNTS Intelligence finds that even consumers who have cash to burn have been cutting back amid ongoing financial challenges.

The study, “New Reality Check: The Paycheck-to-Paycheck Report – Why One-Third of High Earners Live Paycheck to Paycheck” found that almost half of consumers earning upwards of $100,000 a year lived paycheck to paycheck as of January. 

“Moreover, the study revealed, while 60% of shoppers overall cut back on nonessential purchasing, 56% of high-income consumers did the same, and 28% of consumers in this group have switched to purchasing lower-quality products,” PYMNTS wrote.

Meanwhile, research from the latest installment of the PYMNTS Intelligence “Consumer Inflation Sentiment” series, “The Cautious Spender: US Consumers Now Think First, Spend Second,” found that 57% of consumers expected higher retail prices in the next 12 months.