In the last few weeks, we’ve heard from several consumer products companies that after a strong start to 2022, retailers are delaying and cancelling orders scheduled for delivery in the second and third quarters of this year. It’s hardly surprising that consumers may be beginning to balk and that retailers are getting more conservative, as inflation, rising interest rates, and volatile financial markets are in the headlines every day. Many of us are reminded of current economic uncertainties with every visit to the gas pump and grocery store, with prices at a forty-year high. Unfortunately, increased spending on necessities may take share of wallet away from more discretionary purchases like clothing and home decor.
After working 24/7 last year dealing with supply chain issues driven by the pandemic, most wholesalers have adjusted to the new normal at the outset of 2022, heartened by strong orders from their customers. While there are still supply chain issues to deal with, including long transit times, high shipping costs, and production delays due to shortages of material and labor, most believe that the worst of these issues are in the rear-view mirror. Strong first quarter sales supported a more optimistic view that 2022 would be much better than 2021.
Recent earnings releases from Tapestry and Tod’s Group seem to lend credence to economic optimism, at least in the US. Tapestry reported strong first quarter sales and a positive outlook for its domestic business. This optimism was tempered by weaker sales in China, leading to a warning on overall results for the remainder of the year. Tod’s Group reported double-digit sales growth in the first quarter for all categories and countries, also except for China. The company expects to hit its previously announced sales and earnings targets for 2022 unless the weakness in China continues.
Tapestry and Tod’s Group, however, may be outliers, buoyed by their strong brands. At its annual meeting last week, Gap Inc. announced it would be reporting sales decreases for the quarter ending in April in the low- to mid-teen range, lower than its original estimate. Also last week, Adobe released a report on online spending and inflation, noting that while inflation slowed in April, so did consumer spending. In April, consumers spent $77.8 billion online, versus $83.08 billion in March. Not only did spending decrease, in many categories pricing did too. In 10 of the 18 categories tracked by Adobe, including apparel and home/garden, prices decreased in April versus March (although prices in most categories were up substantially from the previous year).
It may be a bit early to tell if the stories we’re hearing in the marketplace about decreasing demand are signs of a broader issue, or just anecdotal. Considering the macro environment, we suspect discretionary spending could retrench in the near term. However, we hope we’re proven wrong.
Headlines of the Week
Kohl’s shareholders voted to reelect the company’s current slate of 13 board directors, as the retailer faced mounting pressure from activists for an overhaul, Kohl’s announced Wednesday. The annual meeting of Kohl’s shareholders took place as activist firm Macellum Advisors has been pushing for Kohl’s to revamp its slate of directors, arguing the company has underperformed in recent years compared with other retailers. Macellum has contended that Kohl’s Chief Executive Officer Michelle Gass’ efforts, such as teaming up with beauty retailer Sephora or partnering with Amazon on a returns program, haven’t been enough.
Cencosud, a leading retail group based in Chile, announced Tuesday that it had purchased 67% of The Fresh Market grocery chain in a deal valued at $676 million. Greensboro, N.C.-based The Fresh Market operates 160 stores in 22 states, with the majority in Florida. In a filing to the Chilean securities regulator, according to Reuters, Cencosud said it had reached an agreement to buy the specialty grocer, whose controlling fund is managed by affiliates of Apollo Global Management. “The agreement also establishes the possibility that through legal mechanisms that are practiced in the United States, after a certain period of time, Cencosud Internacional can reach a 100% stake,” the Chilean firm said in the filing. Based in Las Condes, Chile, Cencosud operates over 900 stores through a variety of retail brands throughout South America, including Argentina, Brazil, Peru and Colombia. Last week, Cencosud announced it had acquired Brazilian supermarket chain GIGA for approximately $100 million. The Fresh Market deal marks Cencosud’s first venture in the United States. The Fresh Market reported revenue of $1.93 billion in 2021 with an adjusted EBITDA of US $196 million and EBITDA margin of 10.2%.
Apparel & Footwear
Coach owner Tapestry shares rose more than 10% on Thursday morning as the retailer said it’s expecting lockdowns in Shanghai will be lifted at the beginning of June, followed by gradual improvements thereafter. The stock was initially down after Tapestry trimmed its profit outlook for fiscal 2022, with lockdowns in China poised to dent consumer demand for its high-end purses and accessories. It also reported fiscal third-quarter sales and profit ahead of Wall Street’s estimates. But management assured analysts and investors, during a post-earnings conference call, that consumer demand remains healthy in North America and other parts of the world, and can offset near-term losses in Asia. Chief Executive Officer Joanne Crevoiserat said shoppers have responded well to gradual price hikes, even younger customers who are willing to pay more for a high-end hand bag or pair of shoes. Tapestry joins a growing list of companies, from Apple to Estee Lauder, that have flagged the impact of China’s Covid controls on their businesses.
Stitch Fix, which 10 years ago launched as a data-enabled styling service selling clothes by the box, touts its AI to investors, but doesn’t seem eager to speak of it to customers. About three weeks ago, the apparel e-retailer told its stylists to refrain from invoking its technology when dealing with customers who say their preferences are being ignored, according to internal communications obtained by Retail Dive. “Now, not only do they not want us to mention an algorithm, they want us to own the choices it makes,” one stylist, speaking on condition of anonymity, said by email. In an internal message sent to stylists in mid-April, the company said in part: “Data science and Stylists have always worked hand-in-hand… When that partnership doesn’t result in the best client experience, Stylists should take ownership of the disappointment, no matter the role the data played.” According to Stitch Fix stylists interviewed for this story, the company previously did instruct them to let displeased customers know that its algorithm is always learning, and doesn’t always get it right.
Eddie Bauer chief executive officer Damien Huang is leaving the Bellevue, Wash.-based American heritage outdoor brand effective May 13. In May 2021, Eddie Bauer was acquired from Golden Gate Capital by Authentic Brands Group, joining Brooks Brothers, Aéropostale, Forever 21, Lucky Brand and Nautica in its SPARC Group brand portfolio. Huang has a long history in the outdoor apparel industry. Prior to joining Eddie Bauer in 2012, he was vice president of design and merchandising at Patagonia, and before that product director at North Face. Under Huang’s leadership, Eddie Bauer committed to making the outdoor experience more accessible and inclusive, anchoring the brand in performance apparel and outerwear through a multichannel approach
Mango is accelerating its U.S. expansion, starting with a Big Apple flagship. The Spanish apparel retailer opened a three-level, nearly 23,000-sq.-ft. flagship on Fifth Avenue, in the historic “Grande Dame” building, on the northeast corner of 55th Street. The building, which dates back to the 1920s, was formerly the headquarters of companies such as NBC, Columbia Pictures and Coca-Cola. The company, which sells everything under its own label, plans to open approximately 30 U.S. stores during the next three years, accompanied by a strong drive in online sales. The new openings will give Mango a total of about 40 U.S. stores by 2024. “The three-year goal is that the United States will become one of the group’s top five markets in terms of sales,” the company stated.
Shoes.com is changing hands again — this timing joining the Designer Brands Inc. family. The DSW parent company said it has acquired “the key strategic retail domain ‘Shoes.com’ and associated intellectual property assets” for an undisclosed amount. Private equity firm CriticalPoint Capital LLC is the last publicly known parent company of Shoes.com, but Designer Brands declined to reveal whether it was the seller. A spokesman for the company noted that the domain and IP were carved out as part of the sale, and that Designer Brands did not purchase any underlying operating business assets. A landing page on Shoes.com currently states that the dotcom is now “part of DSW” and a link directs shoppers to the DSW.com site.
Athletic & Sporting Goods
Popular footwear retailer Foot Locker has been making many headlines over the past few years. Most recently, Foot Locker and Adidas formed an enhanced partnership that they expect will nearly triple Adidas’ sales at Foot Locker by 2025. Foot Locker will lead Adidas’ basketball lines, including lifestyle and performance categories and key Originals sneaker collections. The retailer will also help launch Adidas’ new sportswear division. This move came on the heels of another big change for the company. Earlier this year, Foot Locker announced it would have fewer Nike products in stores. Nike has been cutting ties with some of the nation’s largest shoe retailers to take more of a direct-to-consumer business approach. Thus, Foot Locker set in motion a plan to strengthen existing relationships to fill Nike’s void.
Stix Golf, the maker of golf clubs, announced it closed a $10 million Series A financing round with contributions from existing and new investors including Verance Capital, 2.0 Ventures and Spacestation Investments. The company makes three flexes and five heights to accommodate a diverse range of golfers, while providing a personalized fit without a formal fitting.
TEAM Partners, LLC, a Dallas-based private investment firm, announced that it has completed a recapitalization of Nexbelt, LLC in partnership with the Company’s founders. Nexbelt, based in Rancho Cucamonga, CA, is one of the originators of the ratchet belt in the U.S. The Company provides a patented, “cut to fit” belt with no holes using high-quality materials and unique, innovative designs. The unique ratcheting system allows wearers to adjust the belts in ¼-inch increments and provides the best feel, fit, and fashion available. The golf line includes popular series such as Go-In!, Fast Eddie, Braided, and Newport, as well as the ability to customize with individual logos or brands. The hunting and outdoor line utilizes the same quality ratchet system but is constructed out of premium nylon material that is durable, versatile, and highly functional for holding tactical accessories.
Cosmetics & Pharmacy
Cosmetics maker Coty Inc raised its full-year profit outlook on resilient demand for its high-end fragrances and skin care products even at a time inflation in most countries has soared to multi-year highs. Demand for luxury goods has held up as higher prices of everyday essentials have not affected the spending power of the affluent, updates from cosmetics group L’Oréal and Birkin bag maker Hermès have shown in recent days. Revenue at Coty’s prestige division, that houses cosmetics and fragrances from the Hugo Boss, Gucci and Burberry brands, rose 21 percent to $726.4 million for the third quarter ended March 31. “[Coty’s] prestige brands are seeing phenomenal growth, which means that consumer confidence to buy our brands is intact,” chief executive officer Sue Nabi told Reuters. The company’s overall revenue for the third quarter rose 15 percent to $1.19 billion, beating estimates of $1.15 billion, according to Refinitiv IBES data.
Discounters & Department Stores
Simon Property Group last week reported strong momentum in leasing and sales during its first quarter, in an environment and business model with elevated volatility. As of March 31, occupancy was 93.3% compared to 90.8% a year ago, according to a company press release. Simon signed more than 900 leases for more than 3 million square feet in the quarter and has “a significant number of leases in our pipeline,” CEO David Simon said on a call with analysts. But the company’s month-to-month leasing rose to 5.4% of gross annual rent revenue, up from 4.2% a year ago and 1.9% the previous quarter. David Simon appeared to deflect reports that the company has bid on Kohl’s. “Please don’t believe any rumors or media reports concerning our M&A activity,” he said. “We’re really, really focused internally.”
After a board shakeup earlier this year, Dollar Tree brought in two new executives who both previously held leadership roles at rival Dollar General. Joining as Chief Supply Chain Officer is John Flanigan, who until 2016 served as executive vice president of global supply chain for Dollar General. The retailer also hired Larry Gatta as the new chief merchandising officer of its Family Dollar banner. Gatta previously was senior vice president of and general merchandise manager for consumables at Dollar General.
Emerging Consumer Companies
Houston-based premarital counseling startup, Ours, has raised $4.5 million in seed funding. The round was led by TMV, and joined by Serena Ventures, GreyMatter, and Collaborative Fund. The company launched its beta in 2020 and has already worked with thousands of customers and has an engaged community of couples across its platforms. “We’re excited to take this first step in shifting the way we think about relationship health. We are building for a world that treats relationship health with equal importance as physical, mental and emotional health. We want working on your relationships to be an everyday experience, accessible to all,” said CEO, Jessica Holton.
Gopuff, founded in 2013 as an on-demand service for an assortment of goods including cleaning and home products, medicine, pet care, office supplies, beauty and wellness items, baby products, food and drinks, local brands, and alcohol, announced the launch of The Mean Tomato, its first freshly prepared food offering. The launch is the company’s first foray into made-to-order food space, which is anticipated to be a huge opportunity for expansion for the company. “As a customer-first tech company, we are the best at delivering bold and unexpected experiences that we know our customers will love,” said Daniel Folkman, SVP of Business at Gopuff. “Gopuff Kitchen’s success has shown that high-quality, Gopuff-made fresh products have immense staying power with our customers. We are proud to launch The Mean Tomato, our first fresh food brand as Gopuff further establishes itself as the one-stop instant commerce destination.”
Food & Beverage
Fitness-focused energy drink maker Celsius continues to make strides in growing its share of the energy drink market, reporting a 167% year-over-year increase in revenue to a record $133.4 million in its Q1 earnings report released on Tuesday. The Florida-based publicly traded company has enjoyed rapid growth over recent years, as its female-friendly, better-for-you positioning and fitness attributes align with evolving consumer preferences within the energy space. While still lagging behind category giants Red Bull and Monster, the brand surpassed Rockstar as the fourth-largest brand in the category as of Q1 2022. North American revenue increased 217% to $123.5 million from the same quarter a year ago. International sales contracted by 10% to $9.9 million.
General Mills has entered into a definitive agreement to acquire TNT Crust, a manufacturer of frozen pizza crusts for regional and national pizza chains, foodservice distributors and retail outlets. TNT Crust is currently owned by private equity firm Peak Rock Capital. Terms of the deal were not disclosed. The TNT Crust business has posted double-digit compound annual net sales growth during the past four years, with net sales totaling approximately $100 million in 2021, according to a press release. General Mills said the acquisition builds on its “strong position” in the fast-growing away-from-home frozen baked goods category. The purchase by General Mills is the latest in a series of deals being made by food and beverage CPGs to grow sales and increase their presence in popular categories.
Mondelēz International said it plans to divest its gum business, including its Dentyne and Trident brands, in developed markets after completing a strategic review of the division during the past year. The maker of Oreo, Triscuit and Cadbury said it is reshaping its portfolio with a long-term goal to accelerate growth and generate 90% of revenue in chocolate and biscuits, including baked snacks. Chocolate and biscuits are attractive and historically durable categories in both developed and emerging markets, while gum has been one of the hardest hit segments during the pandemic as consumers spend less time on the go where much of the consumption in the category takes place. The company will continue to operate other brands and products within its candy business, as well as its emerging market gum business.
Grocery & Restaurants
Global food retailer Ahold Delhaize got off to a solid start in fiscal 2022 with first-quarter net and comparable sales gains atop prior-year growth in the United States, its largest business unit. In the quarter ended April 3, net sales at Ahold Delhaize USA climbed 5.8% to $13.68 billion from $12.93 a year earlier, when the company posted a 3.6% increase, Zaandam, Netherlands-based Ahold Delhaize reported on Wednesday. The retailer said sales benefited from favorable foreign currency translation rates, last year’s acquisition of stores from Southeastern Grocers and higher fuel sales. U.S. comparable sales rose 4.1% overall and were up 3.3% excluding fuel, building on a 1.5% uptick (1.7% excluding gas) in the 2021 quarter. The growth was partially offset by a 0.6% negative impact from weather and calendar shifts, mainly from the timing of Easter, according to Ahold Delhaize. Underlying operating margin for Ahold Delhaize USA came in at 4.4%, down 0.4 percentage points (constant exchange rates) versus a year ago, due to increased labor, distribution and energy costs, partially offset by higher pricing and cost-saving efforts, the retailer noted. The company’s U.S. grocery retail brands include Stop & Shop, Giant Food, Giant/Martin’s, Food Lion and Hannaford as well as online grocer FreshDirect.
CKE Restaurant Holdings, the parent company of quick-service brands Carl’s Jr. and Hardee’s, has announced a systemwide plan to overhaul their restaurants, including extensive remodeling that will involve some $500 million in investments. The Franklin, Tenn.-based company said it will spend $60 million on what it is calling a “brand transformation” that will include new digital menu boards at the drive-thrus and dining rooms, new equipment, streamlined menus and new equipment to make the restaurants more efficient and employees’ jobs easier. The remainder of the spending will come from franchisees, whose restaurants make up 94% of the two brands’ locations. He said he expects renovations at 500 locations to be carried out within the next 12 months, including 80% of company-owned restaurants. That includes new signage, brand statement elements, lighting, bathrooms, subway tiling, parking lots, tables and chairs as well as the new menu boards.
Home & Road
Top 100 retailer Arhaus saw a significant jump in earnings and comparative growth in its earnings report for the first quarter. Net revenue for the quarter ended March 31 increased 43.8% to $246 million, compared with $171 million in the first quarter of 2021. Officials noted that the increase was driven primarily by increased delivery of orders in the backlog as the supply chain continues to improve. In addition, there was strong demand in both showroom and e-commerce channels. Comparable growth in the quarter was 40.3%, compared with 37.6% in the first quarter of 2021. Arhaus defines comparable growth as year-over-year percentage change of the dollar value of orders delivered (based on purchase price), net of the dollar value of returns (based on amount credited to client), from comparable showrooms and e-commerce, including through the direct-mail catalog. Net income rose to $16.06 million, or 12 cents per share compared with $3.89 million, or 3 cents per share, in the first quarter of 2021.
Canadian home furniture manufacturer Dorel Inds. has reported first quarter revenue of $211.5 million, down $17.2 million, or 7.5%, from the same period last year, marking the company’s third consecutive quarterly loss. “Supply chain issues, high inflation, as well as its impact on pricing and our consumers and uncertainty in Europe all contributed to lower earnings in the quarter,” said President and CEO Martin Schwartz. “Sales at Dorel Home declined vs. prior year as consumers made fewer purchases of home office furniture with the easing of COVID-19 and retail price points increased. “At Dorel Juvenile, retail price points increased as well, but demand remained strong in most markets,” Schwartz said. “We have implemented price increases in both segments that are expected to improve results through the balance of the year.” In its earnings report, the company said that internet and brick-and-mortar sales were lower as the erratic supply chain situation persisted, reducing the availability of containers to ship product. Schwartz cited higher ocean freight costs, increased particleboard prices, higher warehousing costs, and increased inventories.
Jewelry & Luxury
Mejuri is taking advantage of the rush to in-person jewelry shopping and plans to nearly triple its store count by the end of the year. Cofounder and chief executive officer Noura Sakkijha said, “Retail is not just a community engagement space, it’s a way for you to manifest your brand and grow your business. Opening new stores has an impact on our growth in the cities that we open — if it weren’t for the pandemic we would have a lot more stores by now.” She said the brand is on target to open another 17 stores this year. Most of those openings will be focused in the U.S. and Canada, along with a second location in the U.K.
Despite anecdotal talk of a slowdown, U.S. jewelry sales in April 2022 rose a healthy 33.3% over the prior year, according to the most recent data released by Mastercard SpendingPulse. That’s nearly triple the increase that Mastercard posted for March 2022, where it saw that month’s jewelry sales rose 11.9% over the prior year’s. U.S. jewelry sales for April 2022 were also up 51% over sales in April 2019, before the onset of COVID-19—a clear illustration of how the industry has grown during the pandemic period. April’s jewelry sales numbers not only topped the overall increase in U.S. retail sales—7.2%—but also outstripped the gain in overall luxury sales (excluding jewelry), which rose 26%.
Russia’s invasion of Ukraine is fracturing a billion-dollar trade that spans the permafrost-laden diamond mines of Siberia, secretive trade houses in Antwerp, dusty polishing powerhouses in India and New York’s glittering designer jewelry stores. Russian mining giant Alrosa PJSC supplies about a third of the world’s raw gems, and US sanctions against the company are causing panic in the industry. Firms from Tiffany & Co. to Signet Jewelers Ltd. have announced plans to suspend sales of Russian diamonds. With wedding season looming in America, desperate delegations have been seeking a workaround from India, the world’s largest exporter that cuts and polishes nine of every 10 stones.
What Ms. Zhang didn’t expect when she hunkered down for Shanghai’s citywide lockdown was complimentary ready meals and desserts from luxury brands such as Louis Vuitton and Cartier to start arriving the very next day. Since the COVID-19 containment began on April 1, closing stores and paralysing online shopping, brands have overcome attendant delivery difficulties to gift provisions to “very important clients” (VICs) like 24-year-old entrepreneur Zhang. Though not high-value gifts, the effort to keep in touch has “impressed and surprised us,” said Zhang, who wanted to be identified by surname only citing privacy. Shanghai has seen some of the strictest containment measures worldwide, with residents forbidden from leaving apartments in blocks where COVID-19 cases have been found, while some buildings and even entire streets have been fenced off.
Office & Leisure
A specialty retailer and product developer that bills itself as “Home of the Hottest Trends” is expanding its U.S. footprint. Showcase plans to open 27 stores in 12 states by the end of summer, the largest and fastest single expansion in the company’s 28-year history. The privately held company currently operates 109 stores in malls across Canada, and 10 locations in the Northeast U.S., which it entered in 2019. To support its U.S. stores, Showcase has opened a 147,000 sq. ft distribution in New York. Showcase sells toys and novelties along with home, health and beauty, candy and food items that reflect the latest trends. The stores are designed to be fun, with flash discounts and feature interactive product demonstrations. Customers are encouraged to “try it before you buy it,” with the majority of the merchandise open and on display. Current top trends at Showcase include Squishmallows, TikTok-inspired candy and beverages, trading cards, Funko pops, food-themed novelty candles and vegan beauty products. Showcase will continue to focus on its extensive private label offerings. Its exclusive in-house brands account for 70% of sales.
Chicken Soup for the Soul Entertainment, Inc, one of the largest operators of advertising-supported video-on-demand (AVOD) streaming services, and Redbox Entertainment Inc., a leading entertainment company, have entered into a definitive agreement under which Chicken Soup for the Soul Entertainment will acquire Redbox. The combination of Chicken Soup for the Soul Entertainment and Redbox will create a leading independent, integrated direct-to-consumer media platform delivering premium entertainment for value conscious consumers. The combined company will have increased scale across content production and distribution, with a massive content library, more than 38,000 kiosks nationwide, extensive digital capabilities in AVOD, TVOD, PVOD, and FAST, and access to millions of targeted customers, including nearly 40 million Redbox Perks members. The combination is expected to be accretive to Adjusted EBITDA in 2023, with numerous opportunities to cross-sell each company’s customer base across digital properties, distribute Screen Media titles via Redbox kiosks and leverage tech and know-how to fully capitalize on Redbox’s AVOD opportunity. The company expects to deliver annual-run rate cost synergies in excess of $40 million in 2023. Chicken Soup for the Soul Entertainment expects that the combined company will exit 2022 with a run-rate exceeding $500 million of revenue and $100 – $150 million of Adjusted EBITDA.
Dover Saddlery®, the leading omni-channel retailer of equestrian products, announced its acquisition by an affiliate of Promus Equity Partners, LLC. The Promus private equity team has decades of experience investing in middle market companies and helping them achieve their goals. Dover Saddlery, in partnering with Chicago-based Promus, is poised for tremendous growth, and executing exciting initiatives in the equestrian marketplace. The Dover Saddlery brand, its vision and the team’s steadfast commitment to their fellow equestrian customers is longstanding. The company currently operates 35 retail locations, distributes multiple catalogs yearly and has a website offering more than 60,000 products for horses, riders, and stable owners. “With the support of Promus, we are positioned for growth according to a robust, strategic plan,” says Brad Wolansky, CEO, Dover Saddlery.
Technology & Internet
Grocery delivery platform Instacart said late Wednesday it has filed a draft registration statement with the U.S. Securities and Exchange Commission (SEC), paving the way for the firm to list its shares. The grocery delivery company was valued at $39 billion in March 2021, when it raised $265 million. That made Instacart one of the most valuable venture-backed companies in the U.S. at that time. However, it said in March it was slashing its valuation by almost 40% to about $24 billion, to reflect this year’s sell-off in technology stocks. For Instacart, the last few years have been a roller-coaster. Faced with a challenging business model heading into 2020, the company got a major boost during the Covid-19 pandemic as many consumers cut trips to the supermarket and turned to online grocery orders. But twin concerns of accelerating inflation and projections for higher interest rates sent risky assets into a tailspin starting in November. Instacart, however, has said its business outlook remained strong.
Prices are surging, and Best Buy has a plan to draw in shoppers hunting for deals on TVs and laptops: more outlet stores. Over the next year, Best Buy will double the number of outlet stores it has to 32 — starting with new outlets in Chicago, Houston, Phoenix and Manassas, Virginia — and add an outlet deals section to its website for the first time, the company said Wednesday. Best Buy has operated outlet stores since 2014, offering discounts on TVs and major appliances that have been returned, repaired, exchanged or manufacturers have discontinued. It also has a similar “open-box” discount section at most of its approximately 1,000 stores. Now, the chain is opening new outlet stores with a larger product assortment, including laptops, tables, gaming consoles and cell phones. It will add more services to these stores, such as same-day delivery, curbside pickup and a Geek Squad center where shoppers can get tech support. Best Buy believes it needed to expand its outlet strategy so it can better appeal to customers who buy based on which discounts they can find.
Finance & Economy
Even with rampant inflation and rapidly accelerating interest rates, household borrowing climbed to start 2022 and hit a new record, the Federal Reserve reported. Consumer debt and credit rose 1.7% in the first quarter to $15.84 trillion. The rise in total household credit was propelled largely by a $250 billion increase in mortgage debt, which now stands at $11.18 trillion, an increase of 10% from the first quarter in 2021. Credit card balances actually fell during the three-month period by $15 billion but still remained $71 billion, or about 9% higher than they were for the same period a year ago. Auto loan originations declined in the first quarter after what the New York Fed described as “a historically brisk 2021,” in which used vehicle prices soared by nearly 27%. Student loan debt climbed by $14 billion in the first quarter, bringing the annual increase to 6.5%.
Americans continue to feel the sting of inflation. Consumer prices rose 8.3% in April from a year ago. As a result, U.S. households are spending an additional $311 a month to purchase the same goods and services they did last year, according to an analysis by Moody’s Analytics senior director Ryan Sweet. To be sure, consumers are still feeling the pain, particularly when it comes to the cost of food, shelter, airfares and new automobiles. Energy prices, on the other hand, declined 2.7% from March — although they are still up 30.3% from April 2021.
Consumers are shopping less but spending more when they do. Inflation may have influenced this rise in expenditures in March, according to “Digital Economy Payments,” a PYMNTS report based on a survey of 3,017 United States consumers. Among the categories included in the survey, consumers are buying fewer groceries, food items from restaurants and retail products. The share of consumers who purchased groceries at least one time in the 30 days prior to being surveyed in March was 88%, down from 89% in February. Similarly, the share who purchased food items from a restaurant was 69%, down from 71%, and the share who purchased retail goods was 60%, down from 62%. At the same time, consumers spent $11 more on groceries, $1 more on food items from a restaurant and $24 more on retail products, in terms of the average amount they spent on their most recent purchase in each of these categories.