The summer of the "very stretched consumer"

**Kimberly Adams** (0:01)
Wrapping up the week in corporate earnings with a check-in on the retail sector.
From Marketplace in Washington, I'm Kimberly Adams. We've been tracking corporate financial results to try to get a better idea of how consumers are doing in this economy. One area that's been especially helpful for this is the retail sector. Among the companies we heard from this week were Abercrombie and Fitch, Best Buy, Kohl's and Dollar General. So what have we learned? Joining me for more is Sucharita Kadali, a retail analyst at Forester. Good morning.

**Sucharita Kadali** (0:33)
Good morning.

**Kimberly Adams** (0:34)
What sorts of trends jumped out to you in the retail earnings that we got this week?

**Sucharita Kadali** (0:38)
We're seeing a very stretched consumer. We have one of the lowest rates of consumer confidence that we've had pretty much since World War II, and what that means is that you essentially have a K-shaped economy. You have consumers at the top end generally able to spend, and they are booing the retailers that are doing well. And then you have a lot of consumers at the lower end who are either cutting back on the amount that they're spending, they're more careful about what they're spending. They are spending with some of those large mass merchants, some of those companies that are doing really well pretty consistently. Our company is like Walmart and Amazon.
So that's really a significant part of the story that we're seeing.

**Kimberly Adams** (1:26)
Kohl said in its earnings that its customers are buying less. If those shoppers are pulling back, where is that money going?

**Sucharita Kadali** (1:34)
Well, Kohl's has struggled for a number of years. They've been in a turnaround situation for several years now. And that's actually pretty reflective of what's going on in the department store sector overall, because virtually every player, with a few exceptions, like a company like Dillard's, for instance, is actually doing pretty well. But for the most part, the traditional department store sector has been on a downward decline for the last several decades. What you're also seeing now is absolutely a reflection of that K, the bottom of that K in particular, because Kohl's' consumer is more of the average consumer, the consumer that is being hurt by the increase in gas prices, the consumer that is likely very worried about the state of the economy. They're concerned about whether or not they'll have a job in a few years because of AI concerns.

**Kimberly Adams** (2:28)
Sticking to that bottom of the K and the K-shaped economy, Dollar General said store traffic has grown for five straight quarters. What explains that?

**Sucharita Kadali** (2:39)
Well, the Dollar General is also at the bottom of the K, and it is a company that had actually not done quite as well through the pandemic because consumers were often purchasing online or consumers were purchasing during the pandemic and then the years following that. Consumers were actually better off economically. We had tremendous government stimulus in those few years, and you actually saw rising tides lift a lot of those other ships. But now, as the consumer is struggling a bit more, we are seeing some of those companies, like the dollar store is doing particularly well. In a down economy, you typically will see the dollar channel rising in addition to companies like Walmart and Amazon, which service mass goods and promise every day low prices.

**Kimberly Adams** (3:37)
Sucharita Kadali is Principal Analyst at Forrester. Thank you.

**Sucharita Kadali** (3:41)
Thank you, Kimberly.

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**Kimberly Adams** (4:44)
This week, trade tensions between the United States and Canada escalated big time. Here's the recap. The United States slapped 50 percent tariffs on $20 billion worth of Canadian goods. Then Canada responded with similar import taxes, which are set to go into effect on September 8th. One industry that stands to be hit especially hard by all of this is the automotive industry. Diane Swank is chief economist at the audit tax and advisory firm KPMG.

**Diane Swank** (5:11)
The Canadian situation is really quite tough because this is now a full-blown trade war. If those tariffs actually go through on September 8th, there's many goods that could be double-taxed as they cross the border, particularly for the vehicle industry. That could disrupt production on both sides of the border. I think this is a more stagflationary story because you get both increased costs at the same time that you are squeezing and causing layoffs in some firms. That's one of the biggest risks of having a full-blown trade war, especially with a country that is so closely integrated into the supply chain in the vehicle sector. This hits the vehicle sector hardest.