The Goods (U.S. Edition) – Curd on the Street
Happy New Year, Goods readers! This week we’re discussing the rising popularity of cottage cheese, how the Surgeon General’s new advice on alcoholic beverages could impact restaurants, and a new subscription gambling service.
Oops…Kia has recalled nearly 23,000 of its EV9 electric cars after discovering that an assembly line employee forgot to bolt down some of the seats. Affected EV9 vehicle owners may experience loose seats or hear a rattling noise, alerting them to the recall issue, the car manufacturer said in the recall notice. Owners of impacted models will receive a notice later this month.
What’s In: This Week’s Trends
- A Fixer Downer: Lower rates of home sales means fewer Americans opening their wallets to fix up and furnish their homes. After a two-year trend of net openings, retailers announced more U.S. store closures than openings in 2024, largely driven by home retailers. LL Flooring is shuttering nearly half of its stores and Big Lots filed for bankruptcy as fewer home purchases, high mortgage rates and inflation led to a decrease in demand for furnishings and renovations.
- Pour Profits: The U.S. Surgeon General has called for updating labels on all alcoholic beverages with a warning that drinking heightens the risk for cancer. This comes at a precarious time for restaurants who rely on alcohol sales given their high profit margin. Consumers were already moderating their alcohol consumption – some restaurants report their diners are drinking less wine, but it’s better-quality and more expensive per glass. Additionally, mocktails with no alcohol are bolstering the bottom line for many restaurants, many of which sell for the same price as specialty cocktails.
- Wide Open Spaces: More people than ever are running errands at their neighborhood shopping center, especially those with a grocery store as the main tenant. Rising occupancy rates in these open-air retail centers have caught the eye of institutional investors. In November, Blackstone spent $4 billion to add shopping-center owner Retail Opportunity Investments to its portfolio, its biggest gamble on U.S. retail since 2011. According to real estate firm CBRE, at least $10 billion worth of U.S. open-air retail portfolios are expected to change hands in 2025.
Cash or Card: Consumer Behavior
What’s going on with the consumer these days? This week we talk about record-high credit card debt, protein-packed snacking, and the month of “Returnuary.”
- Best Debt Secret: Heading into the holiday season, credit card balances hit a record high of $1.17 trillion – 8.1% higher than a year ago. The National Retail Federation reported that consumer spending in November and December of 2024 is set to reach an all-time high between $979.5 billion and $989 billion, and according to LendingTree data, 36% of shoppers took on debt to make these purchases. Of those that took on debt, 21% expect that it will take five months or longer to pay it off, and 28% of credit card users have yet to pay off the gifts they bought last year.
- Curd on the Street: Protein-packed nutrient-dense options are flying off shelves as many consumers are embracing health-conscious, protein-heavy snacks. Consumers are putting down the potato chips and picking up cottage cheese tubs, whose unit sales were up 12.7% year-over-year. Chomps, a high-end meat stick brand, is the fastest growing food brand nationwide, with sales on track to break $1 billion next year. As of November 2023, 86% of consumers are snacking as much as or more than the year before, and in 2024, 22% of consumers report they snack three or more times a day.
- New Year, New Regrets: January is known in the retail calendar as “Returnuary,” the month that consumers regret their holiday purchases and make a wave of returns. In 2024, returns amassed $743 billion, or 14.5% of the $5.13 trillion in total retail sales. Retailers are expecting the holiday return rate to be 17% higher than usual this year as consumers have begun returning outfits worn only once for an Instagram picture or are forced to face the reality of their 2:00 a.m. online shopping spree.
Making Moves: Industry Transformations & Innovation
ICYMI, even industry icons need to reinvigorate their brand presence through unique and creative ways. Here are some new brand moves that you should know about:
- Subscribed to Win: Online gaming player DraftKings has launched a first-of-its-kind subscription service, DraftKings Sportsbook+. The $20 per month service is being offered to select customers in New York, offering participants a 100% profit boost on winning parlays. DraftKings says it is hoping to “[create] more excitement and value to [its] extensive parlay offering,” but it could also be looking to offset high New York sports wagering taxes, which are currently 51%. The company is the first U.S. operator to test a subscription service and is offering users a complimentary first month.
- Don’t Come for Costco: Costco has made it clear that a few things are here to stay, including the $1.50 hot dog combo and its DEI policies. As many retailers are changing their policies amid rising anti-DEI campaigns, Costco stands as an outlier. The wholesaler received a shareholder proposal from conservative think tank, The National Center for Public Policy Research, requesting the company evaluate the “risks” of its current DEI policies. Costco’s board urged shareholders to reject the proposal, suggesting that it was driven by a political agenda rather than genuine business concerns. Costco’s pushback comes as McDonald’s became the most recent company to announce it would be scaling back its diversity policies.
- Ringing in the New Gear: Amazon’s Ring home security unit is upgrading its services to include smoke and carbon monoxide monitoring app alerts for $5 per month, developed in partnership with smoke alarm manufacturer Kidde. Starting in April, the system will also offer a service that can notify a user’s emergency contacts of possible safety concerns. These changes are taking place as Amazon’s hardware division is seeking new ways to generate recurring revenue, according to Bloomberg.
Capital Markets Corner
What consumer news is moving the market this week? Our investor relations experts break down this week’s trends and headlines.
- Coming Back in File: Amidst elevated interest rates and weakened consumer demand, S. corporate bankruptcies hit their highest level since the 2008 global financial crisis, with at least 686 companies filing last year. Waning consumer demand hit companies that rely on discretionary spending particularly hard. In 2024, Party City underwent its second bankruptcy filing in two years, in addition to Tupperware, Red Lobster and Spirit Airlines. The Federal Reserve’s move to reduce rates has slightly eased the pressure on companies and consumers, but officials have indicated they will cut rates more slowly in 2025.
- Big Retail Gets Bigger: Big retailers are tightening their grasp on consumers by investing heavily to grow their market shares. During the last three quarters, the three largest U.S. retailers by revenue – Costco, Walmart, and Amazon – accounted for 17% of total retail sales, compared to 11% 10 years ago. Together, Costco, Walmart, and Amazon spent roughly $47 billion in capital expenditures in 2023. While Amazon and Walmart secured customer loyalty through investments in faster, more efficient delivery, Costco achieved a 93% renewal rate on its membership program through its limited product assortment model. Ultimately, big retailers’ big investments have made it difficult for smaller retailers to compete.
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