American Consumer Spending Trends Help Explain Retail Bankruptcies
The latest American consumption trends may help explain why we’ve seen so many retail bankruptcies this year. Before we dig into the latest statistics shared by the U.S. Bureau of Labor Statistics, it’s worth mentioning that almost all of the retail bankruptcies filed this year had one thing in common: they were specialty retailers that sold apparel or footwear targeting a specific consumer market.
With Americans cutting their spending on shoes and clothes, it is understandable why so many retailers are struggling to keep their doors open.
To name a few struggling apparel retail companies, BCBG Max Azria Group, LLC; The Gymboree Corporation; Payless ShoeSource, Inc.; rue21, inc.; Ascena Retail Group Inc, bebe stores, inc.; Wet Seal, LLC.; and True Religion Apparel, Inc. have all sought bankruptcy protection this year.
These retailers have cited declining store traffic in their bankruptcy filings. While e-commerce has played a role in driving sales away from brick-and-mortar stores, the truth is that the average American household has been cutting its spending on apparel and diverting it to other discretionary expenditures.
According to the latest U.S. consumer expenditures data, which is for the year 2016, the average American spent more on six of the eight major consumption categories, including housing, food, healthcare, pensions, and insurance. The only two categories in which Americans cut their spending were apparel and services, and transportation.
Average American consumer expenditures increased 2.4% in 2016, compared to the previous year. Meanwhile, expenditures on apparel and services fell by 2.3% over the same period. At the same time, Americans increased their discretionary expenditures. Average Americans spent 4.9% more on eating away from home and 2.5% more on entertainment.
These statistics fall in line with the general spending trends seen in the markets. The American Millennial generation doesn’t share the same tastes as their Baby Boomer parents. The “Avocado Toast” generation, which is living much of its life on “Instagram” or “Snapchat,” likes to spend more of its money on travel and photo-friendly foods than on expensive clothing or shoes.
The changing consumer patterns are consequently hurting traditional retailers that have been slow to adapt to the shifting trends. Many of these companies have already gone out of business, while others are closing stores and laying off workers at a record pace.
What’s alarming is that these retail bankruptcies, store closures, and layoffs are expected to continue in the near future.
“Consumer Expenditures—2016,” Bureau of Labor Statistics, August 29, 2017.