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What can we learn from the latest data and company results about the state of the retail sector and changes in consumer behavior as the economic mood darkens?
Although major U.S. retailers have dropped talk of the “Roaring Twenties,” there are still signs the industry can ride out the downturn. Positive results from Walmart, the world’s largest retailer and an indicator of US consumer demand, confirm that Americans still like a bargain, even after the company issued a profit warning about a glut of inventory it just three weeks ago.
Retail giant Home Depot was also buoyant, announcing its highest ever quarterly sales and profit and that consumers were still spending on home improvements despite rising prices. Target, another US indicator, provided a counterbalance to the optimism, with its discounting efforts leading to a larger than expected earnings decline.
Official data on Wednesday showed U.S. retail sales holding up as consumer sentiment appears to be recovering from historic lows.
The picture is much bleaker across the Atlantic with two new rounds of data today showing the impact of the cost of living crisis on UK households and their buying habits.
Consumer confidence fell to its lowest level since records began 50 years ago, according to GfK’s monthly survey, while official retail sales data showed people were buying less.
GfK said its survey indicated a “sense of surrender, financial events far beyond ordinary people’s control” that would likely lead to “a change in buying behavior, both of which will impact the high street.” principal and the economy in general”.
Weakening consumer demand was also a key driver of results for UK retailers, including yesterday’s from AO World and Made.com. Footfall on Oxford Street in London, one of Europe’s busiest shopping thoroughfares, is down 60% from pre-pandemic times in 2019 and the road is plagued with retail spaces empty, tired souvenir shops and mysterious American candy vendors.
E-commerce growth that has been accelerated during the pandemic also appears to be slowing, as evidenced by results from companies such as Zalando, Europe’s largest online fashion retailer, and data from countries like Japan.
Retail hopes are now pinned on innovations such as live e-commerce, a modern take on QVC, or the Home Shopping Network, but with social media influencers plugging in products.
The plumbing that enables e-commerce has also taken a hit. Shopify, the Canadian platform offering an alternative to selling through Amazon, has announced that it will lay off 10% of its workforce as its bet that the pandemic shopping boom continues to turn sour.
Innovation editor John Thornhill said the direct-to-consumer retail trend is faltering as businesses grapple with higher advertising costs on Facebook and the hurdles put up by Apple that complicate customer follow-up, in addition to the problems faced by traditional retailers.
The bigger picture, suggests Brooke Masters, America’s investment and industries editor, is that “consumers have soured on things.” As Western economies rebalance toward services and away from goods, big business is struggling to adapt, she argues.
“However, the risk of some companies getting caught is growing rapidly. There is, after all, a reason why economists call it discretionary spending,” she concludes.
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Need to know: the economy
The FT has revealed Prime Minister’s favorite Liz Truss is planning to shake up the UK financial regulators, merging the Financial Conduct Authority, the Prudential Regulation Authority and the Payments Systems Regulator into a new body. The FT’s Cat Rutter Pooley says resurrecting a form of the old Financial Services Authority is a terrible idea. The FT editorial board agrees.
Latest for UK and Europe
The UK public finances improved in July, but the country still borrowed more than expected. Short term borrowing costs are set to see the biggest weekly rise in more than a decade as investors bet on stronger action from the Bank of England to rein in inflation.
British energy groups called for an “immediate” increase in the £400 rebate on energy bills as the scale of the hit to households became clearer. A regulator director Degem resign in protest at how energy price changes are giving “too many benefits to businesses at the expense of consumers”.
German producer prices rose to a record high of 37.2% in July, driven by a doubling in energy costs for industrial groups. The government is reducing VAT on household gas bills to offset the impact of a new gas tax which begins in October.
Turkey surprised markets with a 100 basis point cut in interest rates even as inflation nears 80%.
Norway raised borrowing costs by 50 basis points for the second time this year and warned of more to come.
Middle East according to the IMF, states are expected to earn an additional $1.3 billion in oil revenues over the next four years, which will significantly strengthen the power of their sovereign wealth funds.
Minutes from the US Federal ReserveThe Toronto Stock Exchange’s recent monetary policy meeting suggests that interest rates will need to be held at restrictive levels “for some time” to combat soaring inflation.
Ghana raised interest rates to 22% in an attempt to control inflation, currently at 31.7%, and a rapidly depreciating local currency.
Columnist Helen Thomas reflects on the threat to global supply chains because climate change is causing drought and the drying up of major waterways.
Need to know: company
After european foundries are expected to follow the closures of two major operations in Slovakia and the Netherlands this week due to soaring energy costs. That could force big manufacturers, which depend on smelters for metals such as aluminum and zinc, to look to overseas producers, helping China and Russia cement their grip on global markets.
DP Worldthe Dubai-based parent company of P&O Ferries, which has drawn opprobrium for its massive layoffs of crew members, posted a record $721 million profit in the first half on the back of a strong business performance freight.
US junk bonds surged as investors bet the Fed’s efforts to curb inflation will avoid triggering a deep recession. Quantitative fundswho look for market trends and then try to take advantage of the momentum, are increasing their bets on US equities, helping to fuel the recent market rally.
The UK financial regulator has warned companies that offer buy now, pay later products against misleading advertising.
The EU is bracing for legal challenges to its new legislation setting standards for Great technology.
country garden, China’s largest real estate group, has warned that half-year profits could fall by 70%, underscoring the ongoing slump in the country’s property market. Profits more than halved at Geelythe country’s top Chinese automaker, thanks to chip shortages and pandemic restrictions hitting demand and disrupting production.
The British are expected to continue the pandemic trend of drink at home, according to Australia’s largest listed wine producer, with a bias towards the low-end price of £6-8 a bottle. In Japan meanwhile, the government is promoting alcohol among young people as its finance ministry worries about the disappearance of tax revenue.
The first detailed study of the persistence of Covid-19 neurological and psychiatric effects showed a significant increased risk that people could develop dementia, psychosis and brain fog two years after infection. The impact was greatest in the over-65s, of whom 4.5% developed dementia within the next two years, compared to 3.3% in the control group.
The UK has become the first country to approve a Omicron specific booster. Moderna’s vaccine targets the original strain of the virus and the BA.1 variant and is expected to be licensed in other countries soon.
Senior US health official Rochelle Walensky said the Centers for Disease Control had made ‘dramatic mistakes’ in the fight against Covid as she announced a shake-up to improve the CDC’s response to emergencies.
Although much of the world has reduced or ceased Covid Restrictions, the situation is very different in Japan and much of Asia, with tourism still being hit hard. Fears of being caught in a Covid lockdown in China also threaten consumer confidence and any tourism revival.
And just in case all that, along with monkeypox and the possible return of poliomyelitis, weren’t worrying enough, a new strain of bird flu decimates wild birds. Stronger biosecurity and expanded surveillance are needed to protect both animals and people, says science commentator Anjana Ahuja.
Covid cases and vaccinations
Total number of global cases: 587.9mn
Total doses administered: 12.5 billion
Get the latest global picture with our vaccine tracker
Some good news…
This week Scotland became the first country in the world to give people the right to free vintage products.
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