Investor Briefing – Consumers Still Spending, But Are Tariffs Starting to Shift Their Habits?
Executive Summary
Despite macroeconomic headwinds, U.S. retail sales remain solidly positive, up 0.9% YoY in May. However, the sector faces clear signals of stress, as front-loaded imports unwind, tariffs inflate costs, and consumer confidence dips. Investors should note:
- Consumers remain resilient, with robust savings and low unemployment.
- Tariff-driven costs are rising, pressuring margins.
- Behavioral shifts toward private labels, value-seeking, and cautious discretionary spend indicate a changing retail landscape.
The net result: continued consumer spending but shifting patterns, requiring strategic agility from retailers and prudent capital allocation from investors.
(Sources: Chain Store Age, Conference Board, Coupa, Numerator, Freightos, U.S. EIA, Amazon press releases, June 2025.)
Macro Trends: Growth, But Cooling Momentum
- Retail Sales: May sales rose 0.9% YoY, but fell 1.1% MoM, partly due to earlier tariff front-loading rather than broad consumer weakness. Chain Store Age, June 2025
- Labor Market & Savings:
- Unemployment steady at 4.2%.
- Household debt-to-income ratio healthy at 60.9%.
- Savings balances up 3.6% YoY, sustaining spending capacity.
- Consumer Confidence: The Conference Board’s Consumer Confidence Index dropped sharply to 93.0 in June (from 98.4 in May), signaling growing caution despite solid fundamentals. Conference Board, June 2025
Tariffs & Cost Pressures Emerge
Shipping & Input Costs
- Asia-to-West Coast container rates spiked 167% since early April. Freightos Baltic Index, June 2025
- Oil rose ~20% in June alone, reaching $75/bbl, increasing logistics and manufacturing costs. U.S. EIA, June 2025
Supplier Reactions
- 49% of suppliers plan price increases tied to tariffs, most in the 5-10% range, potentially lifting household costs by $300/month on average. Coupa, June 2025
- Retail segments already softening: building supplies, electronics, and restaurants.
These rising costs pressure gross margins, requiring brands to choose between margin erosion and passing prices to consumers—potentially dampening demand.
Consumer Behavioral Shifts
Private Label Acceleration
- Nearly 3 in 4 consumers claim they recognize private labels, yet 72% can’t visually distinguish them from national brands, signaling massive room for retailer margin expansion via store brands. First Insight, June 2025
Budget-Conscious Mindset
- 6 in 10 consumers plan to cut spending in coming months, fearing a recession or stagflation. Adtaxi, June 2025
- Gift cards are rising as a budget-control tool, with 10% higher sales forecast for 2025. Blackhawk Network, June 2025
Corporate Strategy & CapEx Moves
Investors should monitor:
- Amazon is deploying $54 billion in UK infrastructure by 2027, betting on logistics and data to defend margins. Amazon Press Release, June 2025
- Walgreens posted a strong quarter but warned on U.S. front-end retail sales, highlighting the challenge of discretionary categories. Chain Store Age, June 2025
- Kroger plans to close ~60 stores but reinvests in customer experience to sustain margins.
- C&S Wholesale Grocers is acquiring SpartanNash for $1.77B, a strategic play to gain scale and compete with global grocery giants.
Investor Implications
- Margin Watch: Retailers with low exposure to tariff-sensitive categories or with strong private-label portfolios (e.g. Costco, Walmart) may outperform.
- CapEx Allocation: Logistics and data infrastructure remain critical differentiators in an inflationary environment.
- Consumer Sentiment: While spending remains strong, the confidence drop is a caution signal. Retail REITs and consumer discretionary equities could see volatility if macro conditions worsen.
Consumers are still opening their wallets—but increasingly with discernment and caution. The U.S. retail market remains supported by strong fundamentals like low unemployment, healthy household balance sheets, and a cultural willingness to spend on experiences and essentials. However, beneath the surface, significant crosscurrents are gathering force.
Tariffs and broader inflationary pressures are raising costs across the supply chain—from manufacturing to shipping to the retail shelf. While headline retail sales remain positive, the recent dip in monthly figures, alongside sharply declining consumer confidence, signals that households may be nearing a tipping point. In this environment, consumer loyalty is up for grabs, as buyers seek value not merely in price but in perceived quality, convenience, and brand trust.
Private label growth stands out as a critical theme, offering retailers margin protection and competitive differentiation. Yet even here, execution is key: store brands must deliver quality indistinguishable from national labels, or risk eroding hard-won shopper loyalty.
The data further show that consumers are adopting more defensive strategies—choosing gift cards, shifting toward essential purchases, and planning to reduce discretionary spending. These shifts may blunt the potential upside of peak retail seasons, particularly in categories dependent on impulse buys and premium discretionary goods.
For investors, the implications are multifaceted:
- Retail Real Estate may remain stable in prime corridors but could see increased vacancy or pressured rents in non-core locations if retailer margins compress.
- Retailers with scale and robust private-label programs, as well as those investing in logistics and technology (like Amazon), may be better positioned to navigate cost volatility.
- Consumer Discretionary Equities could experience heightened volatility if consumer sentiment further deteriorates, particularly for companies heavily exposed to tariff-sensitive goods or non-essential categories.
- M&A Activity may accelerate as players seek consolidation to gain scale efficiencies and negotiate better terms across supply chains.
Ultimately, while U.S. consumers continue to spend, the patterns and channels through which they deploy their dollars are shifting. Retailers and landlords who proactively adapt their strategies—through technology, inventory agility, and curated customer experiences—will be better equipped to weather potential economic turbulence ahead.
The retail sector in 2025 is not a story of collapse, but rather one of transition. Investors who remain nimble and selective will find opportunities in the midst of volatility—especially among companies that can blend cost management with genuine value creation for customers.
References
- Chain Store Age. “Retail Sales Remain Strong But Slowed Down From Prior Month.” June 2025. Link
- The Conference Board. “Consumer Confidence Survey.” June 2025. Link
- Coupa. “Tariffs to Drive Holiday Price Increases.” June 2025. Link
- Numerator. “Tariff Sentiment Tracker.” June 2025. Link
- Freightos Baltic Index. “Container Freight Rates.” June 2025. Link
- U.S. Energy Information Administration. “Crude Oil Prices.” June 2025. Link
- First Insight. “Private Label Brand Perceptions.” June 2025. Link
- Adtaxi. “Consumer Spending Outlook.” June 2025. Link
- Blackhawk Network. “Gift Card Spending Trends.” June 2025. Link
- Amazon.com Press Release. “Amazon to Invest $54 Billion in UK Infrastructure.” June 2025. Link