This year, consumer spending for Halloween is projected to drop, signaling potential tightening in holiday expenditures and marking an early onset of winter for the retail sector. Traditionally, Halloween serves as a critical sales period for retailers, but with reduced consumer spending, forecasts indicate a 5% decline in holiday revenues. This challenge arises from rising operating costs and a more budget-conscious approach from consumers.
According to Bloomberg, the National Retail Federation reports that holiday consumer spending in the U.S. is expected to decrease by 5%, reaching $116 billion, with greeting cards and apparel likely to see the steepest declines. This situation exacerbates the difficulties faced by seasonal retailers.
The report highlights that the slight increase in unemployment and persistent inflation have placed low-income households in a precarious financial situation, leading companies like Michaels Cos. to note in their earnings calls that families earning less than $100,000 are significantly cutting back on spending, which in turn has drastically reduced shopping lists.
Erica Weisgerber, a partner at the law firm Debevoise & Plimpton LLP, remarked, “2024 is shaping up to be a perfect storm for various retailers.” She elaborated, “The combination of inflation, rising operating costs, and decreased consumer spending presents particularly tough challenges for brick-and-mortar retailers. Even online giants like Amazon are struggling due to fierce competition.”
Retailers facing operational crises, such as Michaels and At Home Group Inc., have found backing from private equity managers. However, the surge in interest rates and inflation during the pandemic has dampened consumer spending, making acquisitions during this period less opportune.
Moody’s Ratings notes that retailers in crisis, especially in sectors like home goods, apparel, and sports equipment, are burdened by substantial debt, limiting their ability to compete with financially robust rivals.
As consumer spending dwindles, several bankruptcy filings have emerged this year, including those of Joann Inc., Big Lots Inc., and Conn’s Inc. Holly Etlin, a partner at AlixPartners, pointed out that “the retail industry is discovering that efforts to meet lower benchmarks remain noticeably insufficient.”
In a report released last month, Moody’s stated that the capital market has largely turned a blind eye to struggling retailers. Over the past year, numerous retailers have announced bankruptcies, with the first quarter of this year recording the highest number of bankruptcy protection filings since 2012.
James Gellert, CEO of risk analysis firm RapidRatings International Inc., commented, “As P/E ratios have plummeted and leverage trading rates have surged, private equity investors, who typically have provided support to the retail sector, are now entering a new period of transactional calm.”
