The Playbook for Retailers Dealing with a Cautious US Consumer

This blog post includes snippets of our 2Q24 Pictures for PM presentation, which is available for download now. The presentation features over 100 slides of charts, tables, and insights on companies across our entire portfolio, covering the most important trends emerging YTD through 2Q24.

US Consumers continue to spend cautiously, with decelerating wage growth, normalizing job creation, and persistent inflation weighing on consumer sentiment. This has created a tough operating environment for US Retailers, who have responded with several strategies including: 1) pricing to drive sales; 2) incentivizing customer loyalty; and 3) emphasizing product assortment.

The Cautious US Consumer

According to YipitData’s Consumer Spend Index (YCSI), a measure of consumer spend including nearly 700 merchants, the US Consumer has grown spend cautiously this year. YCSI suggests consumer spending growth decelerated through 4Q23 before stabilizing in 1Q24 at muted levels (relative to 2023). We observed a weaker start to 2Q in April, with a slight reacceleration in May and June, though growth remained muted. In aggregate, and excluding the leap day, YTD consumer spend is close to flat compared to 2023.

How have companies responded to the caution?

1) Pricing Strategy 

Across our US Consumer coverage, consumers are responding to promotions and key shopping events. For example, we see ULTA’s sales growth concentrated around promotional events in 2024, with growth meaningfully weaker in between events. 

Given consumers’ price sensitivity, we have even seen a slew of general merchandise and grocery retailers announce promotions, including Costco, Ikea, Aldi, Walmart, Target, Amazon, and Walgreens.

We have also seen a rise in private label as a lever to respond to price sensitivity while defending margins. For example, the Sporting Goods retailers (DKS and ASO) in our coverage have seen private label Apparel outpace the broader Apparel categories.

2) Incentivize Customer Loyalty

In 2024, several retailers have launched or revamped loyalty programs and partnerships, including ULTA, LOW, TGT, CHWY, UBER, FL, and ASO. Why? Because loyal customers spend more (i.e CHWY’s Autoship customers).

3) Emphasize Product and Brand Assortment

In addition to pricing and incentivizing loyalty, companies are looking for newness and innovation in product assortment to drive growth. 

For example, at BBY, we saw the new suite of iPads had a meaningful impact on total sales growth over a short period of time. BBY management has also pointed to the launch of AI-enabled laptops as another innovative suite of products that could support growth.

On top of innovation, virality of products is also top of mind. We have seen virality support sales growth across several retailers and brands in our coverage, including LULU (Belt Bags), the Bogg Bag, as well as Stanley. To put this impact in perspective, Stanley’s virality has driven Stanley GMV across approximately 15 retailers in our US Brands product to  about 4x the amount of YETI GMV, from just ~0.5x a couple of years ago.

Given the impact of innovation and virality, having access to the next hot brand has become increasingly important. Without these hot brands, retailers are likely to lose share compared to peers. 

Case in point, the popularity of HOKA and On Running have supported DKS’s Footwear category growth, and have accounted for much of the outperformance vs. ASO over the past year, which does not carry these brands.

Virality can also create tougher comps as we lap the original rise in popularity, which also showcases the importance of access to the next hot brand. ULTA is a great example: we have seen fading tailwinds as hot brands like e.l.f. and Bubble begin to lap tougher comps, but ULTA’s access to Charlotte Tilbury and especially Sol de Janeiro have provided a meaningful offset YTD.

The content above includes a snippet of the analyses present in YipitData’s 2Q24 Pictures for PM’s presentation. Download the full, 100+ page slide deck here.

Our Research Analyst team also conducted a webcast going over the highlights from the presentation, watch on-demand here.