S&P Global – Retail Restaurants Credit Outlook, 2024

The S&P Global Retail Restaurants Credit Outlook for 2024 highlights several changes and key assumptions for the retail restaurant industry. In terms of changes, there has been a decrease in cost inflation, particularly in shipping containers and energy costs. Wage growth is also slowing down, as suppliers have passed on most, if not all, pricing. The focus for issuers will be on reducing excess inventory by limiting replenishment orders and aggressively promoting their products. Additionally, consumers are becoming increasingly cautious, deferring discretionary spending and seeking bargain deals. Looking ahead to 2024, the key assumptions include increased household budget pressures, which will dampen consumer spending. Factors such as rising mortgage interest payments, depleted savings, and student loan repayments in the US will contribute to this. Retailers will also continue to face challenges as consumers prioritize spending on experiences over apparel, durables, and home goods. Softening demand will make it difficult for retailers to absorb fixed costs, particularly labor and leases. There are also key risks to consider. A higher-than-expected unemployment rate could cause a significant pullback in consumer spending. Additionally, if consumers lose confidence in their future income, they may further reduce their spending. Retailers may be forced to resort to promotions and excessive discounting to clear inventory, potentially impacting profitability. Finally, the risk of elevated real rates increases the possibility of refinancing challenges for companies with significant debt maturities in 2025 and beyond.