Retail Pulse Report: Consumer Spending Brake Lights

They’re not on yet, but give it a few more months.

Adobe Stock’s take on “Brake lights on the road ahead”, which is not quite what I was going for but as close as I could get.

If there is one theme for this week’s take, it’s brake lights. Setting EV’s aside, if you take your foot off the gas pedal, the car may start to slow. But probably at a rate where the car behind you won’t notice. That’s what brake lights are for, to signal that you are decelerating, if not coming to a full stop.

Consumers have not hit the brakes, yet. But they may have already taken their foot off the gas and have that foot hovering over the brake pedal as we speak. One thing I’ve learned is that there is definitely a lag between when something hits that fundamentally alters consumer behavior, and when that behavior shows up in the measures available to us. By that standard, we have a few more months before the brake lights flash red.

Let’s dive in!

Retail Economic Indicators

The US Census Bureau’s take on retail sales comes out right about the time I publish the newsletter, so you’ll have to wait until next week to find out how that plays into the US consumer psyche. But that’s OK because one, that will give it time to sink in, and two, there are plenty of other indicators out there.

One of those is the CNBC/NRF Retail Monitor, which comes out about a week before Census Bureau data in order to scoop the market. For February, they tried to have it both ways: "Retail spending declined on a monthly basis in February amid concern over tariffs, but continued to grow year over year as the economy remained strong." Once again, useless to read into month over month declines. February was up 3.38% year over year according to the Retail Monitor, which would theoretically beat inflation. January, however, was up 5.72% year over year. And it is more interesting to compare those two numbers – that February does actually show some signs of pulling back, rather than obsessing the 0.2% decline from January to February that tells us nothing.

The Consumer Product Index’s measure of inflation for February came in at 2.8% year over year, but was a snapshot that did not fully take in the impact of tariffs. Overall grocery inflation had cooled to 1.9% year over year, but the price of eggs was up 58.5% year over year in February and 106% month over month, so you can imagine that a lot of consumers didn’t really notice.

And job gains came in lower than expected – 151k instead of the expected 170k – and wage growth slowed in February. So it’s not a huge surprise that the March 2025 consumer confidence index from the University of Michigan’s Survey of Consumers fell 10.5% month over month, from 64.7 in February to 57.9 for March. It’s not the current economic conditions – those have not sunk in yet. The current conditions index fell 3.3% month over month, but the future expectations index fell 15.3% for the same period.

In watching stimulus checks and also the end of supplemental programs like pandemic era SNAP benefits, it seems to take a good 4-6 months before a change in fortune really rolls through to measurable consumer behavior. But consumers are beginning to anticipate the worst. It’ll be April or May before we know if it has actually arrived.

In the meantime, retailers are bringing in as much merchandise as they can ahead of what now look to be real tariffs. From the NRF Port Monitor, for port-based imports it’s really Chinese goods that are having the most impact, as anything coming into the US from Canada or Mexico come over land. January saw 2.22 million TEUs (twenty-foot equivalent units) come through US ports, which was up 4.4% from December and up 13.4% year over year. While February’s total volume is anticipated to be less – 2.07 million TEU – that would be up over 6% versus last year, and the busiest February since 3 years ago.

One new thing that I hadn’t heard a lot about, though, is the potential for a $1 million to $1.5 million port fee for any Chinese-made cargo ship docking in the US. This would be on top of the tariffs. The majority of cargo ships are Chinese-made, so experts expect that the net impact of a dock fee, should it arrive, will be for carriers to consolidate shipments into larger ships, which can access fewer ports and then would need to sit longer to unload larger loads.

Retailers bringing in more goods to avoid tariffs, right as consumers consider a real need to pull back spending. What could go wrong?

Retail Tech & Research Data

Progressive Grocer released the results of their 76^th annual consumer expenditures study. It has some interesting perspectives on how much high prices have settled into consumer expectations. The study looked at 1,000 US shoppers in early January. It found that consumers have become more used to sticker shock, even when they still don’t like it. They’re starting to redefine their definition of “value” as a result, to focus more on product quality and convenience and less on price as a factor, though they still rate price near the top of the list as a consideration. Possibly one of the more distressing findings: 1 in 3 consumers bought fewer groceries in 2024 vs. 2023. Respondents reporting eating fewer meals overall, citing prices as a factor

Numerator has chimed in with an assessment of consumers’ reactions to tariffs in February. They were still mostly “will he/won’t he” then, but at least very few consumers can say they were blindsided now that we’re in the “he will” category: 83% of US shoppers surveyed say they’re aware of new or proposed tariffs and 80% are concerned about the impact on their finances or shopping. 76% plan on making changes to their shopping habits in response to tariffs. 35% support the tariffs, 23% feel neutral or have no opinion, and 38% oppose. Opinions are stronger on the negative side, with those who “strongly oppose” outnumbering those who “strongly support” two-to-one (28% vs. 14%). However, I feel like this is still in the territory of “what I think I’ll do is not what I’ll actually do in the moment”. The 35% who support tariffs now may not feel so good about it if it has a significant impact on their discretionary budgets.

I guess one bright side for retailers is that they can possibly entice deal-seeking consumers to download their app. CI&T surveyed 1,000 US consumers in their 5^th annual omnichannel study. They found that 54% of consumers expect prices to rise in the year ahead. 43% said they will download a retailer’s app in order to get a better deal and 38% report this is the primary reason they download the app to begin with.

And finally, you can really study just about anything about retail, including why people do or do not return their shopping carts to the receptacle in the parking lot. I think possibly the most interesting outcome from this study were some of the rationales offered up by both the returners and the non-returners. Weather definitely played a factor, and parents of toddlers or older were stronger returners because they made a game out of it and/or felt it was an opportunity to teach responsibility, while parents of infants often did not return because they didn’t want to leave their baby alone in the car. Also, note that this study was from 2017, which was strange that Google Alerts coughed that up for me now, but I imagine there has not been a lot of change in the shopping cart return trends since then. And now the next time you make a grocery run, you can thank me for causing you to radically overthink something that most people probably do on autopilot. So you’re welcome!

Retail Winners and Losers

Once upon a time I participated in a global IT strategy project for McDonalds. To really fully date it, at the time we had to have special permission as consultants to access the internet because at the time the company was worried about corporate employees abusing the privilege. How times have changed! Anyway, one thing the company was clear on: quality, value, and cleanliness. Which makes this take-down of McDonalds post-pandemic hit particularly hard because it basically concludes that the problem is a complete disregard for the in-store customer experience.

I recently spent some words on why the in-store experience is so hard. In quick serve food service, when labor is sparse, employees end up spending all of their time behind the counter, and the rest of the store suffers. And customers notice. I think it’s interesting and probably not a coincidence that Starbucks seems to be having the same problem, and both of them had previously made a lot of hay out of serving as a third space (though to two completely different customer sets).

In the meantime, Amazon apparently is applying new pressures on marketplace sellers. It’s a combination of increasing Fulfilled By Amazon (FBA) fees, increasing price pressure from international sellers which limits sellers’ ability to recoup those higher FBA fees, but all under the umbrella threat of being made irrelevant by a simple expansion of Amazon Basics into the seller’s categories or unique SKUs.

Ending the de minimis loophole would fundamentally change this game. It may be that Amazon is trying to lock in higher fees in advance of anticipated market shifts. But the threat of being undermined by Amazon Basics has long been there. What is impressive is that it now includes 4300 products across 21 categories, with an estimated $2.7B in sales. A whole company business all on its own.

What Did We Learn This Week?

We’re in the drifting phase of consumer spending. It appears like they may be slowing down but the brake lights are not on yet. Meanwhile, retailers are importing like crazy. If consumers stop spending, it’s not going to matter that all this inventory is pre-tariff. So how that plays out will be interesting to see.

Everything else is interesting but not necessarily valuable – at least until we know just how consumers will react when they start seeing tariff prices at the shelf.

Until next week!

- Nikki