Tracking the global consumer

Tariff implications

Generally, we believe that companies operating in and around the US and Canada have the highest potential to be adversely impacted. Uncertainty around the tariff situation has likely led to hesitation across the supply chain, from the consumer to the retailer and the supplier. Anxiety from the consumer has led to a recent sharp dip in consumer confidence and sentiment.

Methods to mitigate the impact of current and potential tariffs are wide-ranging. These include, but are not limited to, sharing incremental costs with suppliers, further diversifying supply chains and sourcing, shifting manufacturing locations, raising prices, and leaning into productivity. We see particular hardship for products that have certain appellations, or legally defined geographic origin and quality (e.g., Champagne, Scotch Whisky, Irish Whisky, Cognac, Tequila), or marketing provenance as shifting manufacturing is nearly impossible.

On the contrary, additional U.S. tariffs on China may free up manufacturing capacity to serve European retailers and put further downward pressure on shipping rates, thus providing a cost tailwind.

U.S. consumer staples

We remain cautious about consumer conditions, observing a topline slowdown in North America's sales growth, especially since mid-February, with March showing little improvement. This trend, confirmed by market data, recent company earnings, and our checks, suggests worsening fundamentals. Although January's poor weather contributed, the decline continued into February, likely due to consumer concerns over tariff implications amid perceived high prices. According to a Numerator survey, 80% of consumers are worried about tariffs' inflationary effects, particularly on groceries, gasoline, and household goods. While companies in our coverage haven't included tariff impacts in their forecasts, they note a single-digit percentage of cost exposure. Additional tariffs could further weaken earnings. We anticipate the challenging consumer landscape will extend through the first half of 2025.

US hardlines/broadlines, food retail and e-commerce

Some companies reported slower demand in February, attributing it to weather impacts and consumer uncertainty. There's also mention of a harsher cold and flu season and lower tax refunds. We're examining if middle and high-income consumers are beginning to feel economic pressures, although so far, they appear resilient. Retailers catering to higher-income shoppers reported stable consumer trends. Some retailers reported sales momentum throughout the first quarter, however one retail company cited a recent drop in customer traffic, linking it to rising inflation and economic worries, which is a mildly concerning data point that we’ll continue to monitor closely.

Restaurants and leisure

The companies we cover anticipate a tough year for consumer spending. Some foresee ongoing spending pressures, with one predicting a stagnant or slight decline in the burger fast-food market despite easier comparisons in the second half of 2025. Another company observes a trend towards higher-income customers, hinting at challenges for lower-income groups. High-income consumer spending is varied, with some reporting stability in discretionary services like group classes and personal training, while others see weaker credit card transactions among customers (mostly earning above $75k) and noted similar spending patterns across income levels, which may suggest a general pullback in spending.

Canadian consumer sentiment

Consumer confidence in Canada has significantly declined, with the Conference Board of Canada's Consumer Confidence Index reaching record lows, dropping 32% from January to March. Conversations with our covered companies indicate a continued trend of consumers seeking value, with increased traffic to discount channels/banners gaining on full-priced/full-service and private label products growth outpacing national brands. Promotions are also more prevalent in shopping baskets, continuing a pattern from mid-2022. Market participants are apprehensive, bracing for potential economic challenges due to possible new tariffs, which could lead to GDP headwinds, higher unemployment, and a weaker Canadian dollar, often resulting in inflation. Against this backdrop we remain cautious on the outlook for consumer spending, with risk to the downside.

European consumer staples and general retailing

We approach the consumer staples sector with caution due to uncertainty in key markets. Momentum in China remains unchanged, while European consumers appear relatively stable. Yet, retailer concerns warn of potential de-stocking and pricing issues. These challenges, along with commodity and currency fluctuations and phasing of innovation, suggest companies anticipate late-year growth.

In general retailing, The UK and European consumer looks to be in reasonable shape overall, with low inflation, steady employment, real wage growth, and good savings rates. However, consumer confidence is dampened by inflation worries and potential job losses. The impact varies by income level; the UK's lowest earners have seen little cash flow increase due to rising utility costs and food inflation, though a national living wage increase in April should help. In contrast, the highest earners experienced a significant rise in disposable income, boosting premium retail. We expect an uptick in retail activity in Europe and the UK during March/April, driven by seasonality and soft comparables. For example, one of our covered companies anticipates a robust Q1 and has increased its profit forecast. In this uncertain climate, consumer spending is expected to be necessity-driven, with spikes around paydays and special occasions like Mothering Sunday and Easter.