Retailers could be in for a rough summer
Anticipating big price increases due to tariffs, shoppers plan to keep their budgets tight or have pushed forward big purchases like cars or appliances. That has created unpredictability for retailers as to what the summer shopping season will look like this year.
In March, KPMG surveyed more than 1,500 consumers, and 60% said they’ve started tracking their expenses more carefully. Most said they expect a recession within the next year. On average, those shoppers said they expect this summer to spend 16% of their income on discretionary categories including restaurants, clothing or entertainment, down two percentage points from 18% last year.
In a separate study, performance marketing firm Wunderkind surveyed 300 U.S. consumers and found 37% of them plan to reduce spending during the summer and holidays. Thirty-two percent of those consumers said they plan to focus on buying essentials, and 42% said they’re hunting for discounts.
The elevated global tariffs announced April 2 are scheduled to take effect in July under the 90-day pause, but so far it’s unclear whether or by what degree President Trump will roll them back. Analysts told Modern Retail they expect tariff-related price increases to take effect during the summer, and with consumer sentiment already down, seeing higher prices on the shelves could dissuade customers from shopping even further.
Duleep Rodrigo, consumer and retail leader for KPMG, highlighted in an interview that the firm’s research shows 58% of consumers, as of March, still planned on traveling during the season. He said that shows customers are still spending but being more strategic about it.
Rodrigo said households making $100,000-$200,000 a year — which were more likely to report income gains in KPMG’s report — are driving much of the economic activity.
“How that segment spends is really going to be a good indicator of where we’re going to end up in the second half of this year,” Rodrigo said.
Uncertainty lingers around the consumer environment and tariffs. In an investor presentation earlier this month, according to CNBC, Walmart’s CFO John David Rainey said it has become more difficult to predict operating income as the company widened its fiscal first-quarter profit forecast. “I do think it’s just a bit of an uncertain world out there right now,” Dick’s Sporting Goods executive chairman Ed Stack told CNBC. “What’s going to happen from a tariff standpoint? You know, if tariffs are put in place and prices rise the way that they might, what’s going to happen with the consumer?”
“The question mark here is how the consumer reacts and what that does to the overall macro picture,” said Mickey Chadha, vp of corporate finance for Moody’s. “If the consumer pulls back and consumer confidence drops, it’s a spiraling effect on the overall economy.”
Chadha said retailers will handle price increases on a case-by-case basis depending what customers they serve and where they source their products from. He said bigger retailers could begin pushing lower-priced brands or private-label products, and retailers serving lower-income customers may have to take a hit to margins as that demographic may be unable to take an additional bump in costs.
“If the prices go up, the capacity to pass down prices to consumers is very limited because prices are already high,” Chadha said. “But things are very fluid, and every week or every day things change, so who knows.”
Retailers will also face a difficult puzzle later this summer in ordering inventory for the holidays while trying to predict consumer demand. “If we believe that the consumer is going to hold back on spending, then we may have enough of what is needed,” Rodrigo said. But if the demand stays steady, products may be in short supply.
Additionally, as some customers are rushing to make big purchases now, that could have a ripple effect on sales. Panic buying may inflate economic activity in April and lead to a slowdown in the upcoming months, Federal Reserve Bank of Chicago President Austan Goolsbee told CBS’s “Face The Nation,” per CNBC.
“Activity might look artificially high in the initial, and then by the summer, might fall off — because people have bought it all,” Goolsbee said.
Brands are even incentivizing panic buying by launching “tariff sales” to encourage shoppers to buy now before prices go up. Rodrigo added that some outdoor retailers, including Wayfair and Lowe’s, are doing sales on outdoor furniture he said would normally sell during the summer months.
“You’re starting to see retailers offer some really sweet deals to get some of this inventory off their shelves and start moving product much faster,” Rodrigo said. “You want to capitalize on an environment where people are willing to spend.”
Other customers may hold off on purchases until they have more clarity, said Sky Canaves, principal retail and e-commerce analyst for eMarketer.
“I think we’ll continue to see price sensitivity from consumers and prioritizing essential purchases and what must be bought versus the nice-to-haves,” Canaves said. “Some have been looking at what they can stock up on or buy now, but that’s really limited by consumer budgets, because most consumers don’t have a lot of extra cash to stockpile goods.
“I think it’s a dilemma for consumers, as well as businesses, in terms of what to do now versus what to hold off on, because there’s so much uncertainty,” she added. “There’s really no way to know what the tariffs are going to look like in July versus what they look like now.”