2024 to start of with reduced consumer spend

Consumers are pulling back on spending and this will prove challenging for retailers as we head into 2024, says Morningstar DBRS. In a commentary, the firm says it acknowledges considerable uncertainty around the macroeconomic setting, so its negative 2024 outlook for the global retail sector reflects its view that consumer confidence and spending will continue to be constrained in the near term. Key highlights of the commentary include:

• This negative outlook acknowledges earnings pressure in the near term as lower consumer spending and value-focused buying exerts margin and volume pressure on retailers. 

• Retailers that cater to basic consumer needs or offer value are generally in a better position to navigate this period of dwindling consumer confidence. 

• Possibility of some rating changes, particularly for discretionary/smaller retailers with larger variable debt stack. 

“While consumer spending demonstrated some resiliency in 2023, benefitting from accumulated savings, relatively stronger consumer balance sheets, and a tight labour market, we believe that compounded effects of inflation and aggressive interest rate hikes and depleted excess savings are likely to weigh on consumer confidence and spending, and negatively impact operating margins and volumes for retailers well into 2024,” says Vikas Munjal, vice-president of diversified industries. “Looking towards the later part of 2024, the pace of disinflation and interest rate cuts could act as the main catalyst for a revival of consumer confidence and drive a recovery in consumer spending.”