Michael Lasser, UBS Securities, joins ‘Squawk on the Street’ to discuss if Foot Locker’s is a good lens into retail, the notion that certain companies will benefit from trade-downs and the shrinkage issue in retail….(read more)

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Discretionary retail is already in a recession and likely to get worse, says UBS’ Lasser

According to UBS’ retail analyst Jay Sole, the discretionary retail sector is already in a recession, and things are expected to worsen in the coming months. Discretionary retail, which refers to non-essential consumer goods like clothing, electronics, and luxury items, has been hit hard by the economic downturn caused by the COVID-19 pandemic.

The retail industry has been grappling with store closures, supply chain disruptions, and reduced consumer spending. As people are more focused on their basic needs and essential items, the demand for discretionary goods has plummeted. This has forced many retailers to file for bankruptcy, lay off employees, and close down their businesses.

Data released by UBS reveals that discretionary retail sales have already declined significantly, with the sector experiencing a 30% drop in sales in April compared to the same period last year. This sharp decline in sales is a clear indication of a recession in the discretionary retail market.

The situation is expected to deteriorate further as the financial impact of the pandemic continues to unfold. Many individuals have lost their jobs, faced pay cuts, or experienced uncertainty in their employment status. Considering the economic uncertainty, people are more likely to reduce their discretionary spending, further exacerbating the current recession in the industry.

Furthermore, the fear of a second wave of infections and the potential for further lockdowns has created an atmosphere of caution among consumers. The discretionary retail sector heavily relies on consumer confidence and impulse buying. With the fear of an uncertain future, individuals are more likely to prioritize savings and essential purchases over non-essential items.

The slump in tourism and international travel has also negatively impacted the luxury goods market. With travel restrictions in place and global economies suffering, consumers have less disposable income to spend on high-end luxury products.

Retailers in the discretionary sector are now faced with the difficult task of finding innovative ways to adapt to the new normal. Online sales have become critical for survival, and many companies have ramped up their e-commerce capabilities to reach customers who are no longer able or willing to visit physical stores.

Despite these efforts, there is no denying that the discretionary retail sector is facing an uphill battle. It will take a considerable amount of time for consumer confidence and spending habits to recover. As the economy struggles to rebound, it is crucial for retailers to reevaluate their strategies and pivot accordingly to meet the changing needs and preferences of consumers.

In conclusion, the discretionary retail sector is already in a recession and is predicted to worsen in the near future. The decline in sales, job losses, reduced consumer spending, and ongoing economic uncertainties have all contributed to the current state of the industry. Retailers must adapt and find new ways to attract customers and navigate the challenging landscape to survive and thrive in the post-pandemic world.