Retail Outlook | Spring 2015 Update | Consumer Sentiment | Growth

Retail Outlook: Spring 2015 Update

Less Affluent Consumers are Feeling Better But Aren’t Ready to Splurge

Retail & Consumer Products

June 2, 2015

Retail sales growth is not strong in any conventional sense but underlying trends are improving despite a mostly disappointing first quarter in the aggregate. Discretionary retail sales growth in 2015 should have little trouble topping 2014 results as evidence of a broadening recovery continues to mount.

U.S. consumers—not just affluent ones—are decidedly more upbeat in 2015 than they were a year ago and that optimism will be reflected in their spending this year. But that alone may not necessarily translate into strong bottom-line growth and ROI for retailers in an environment that presents competitive challenges on multiple fronts.

Despite the improving backdrop, consumers today face formidable financial challenges, mainly high personal debt that will temper their spending enthusiasm. There are distinct signs that shoppers are beginning to spend – more on entertainment and electronics, less on general merchandise and apparel.

Consumers Are Finally On the Mend

The U.S. recovery has been widely criticized as being too limited in its reach and that is a fair comment. While corporate earnings and financial asset values have rebounded strongly since 2010, measures of economic health that have greater impact on the masses, namely jobs and income growth, have been disappointing. Consumer surveys throughout the recovery revealed that too many respondents were not seeing the benefits of this expansion. That prevailing view began to change in mid-2014.

Consumer sentiment, as measured by the University of Michigan, is near an eight-year high but more noteworthy is that less affluent households are feeling more confident these days with respect to their finances and economic prospects. It has taken much longer this time around than in past recoveries for confidence to rebound among lower income groups. The significance of this shift should not be overlooked.

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