US softlines retails are expected to deliver a mixed performance through the end of 2025, with consumer spending likely to results in a modest holiday season, analysts at UBS believe.
“US consumers' willingness to spend has waned month-over-month due to concerns around employment, inflation, and the direction of the US economy,” the analysts wrote, noting that this has led them to be moderately less bullish on softline stocks compared with last month.
While the US consumer spending environment remains generally healthy, UBS cautioned that growth is unlikely to be strong enough to benefit all retailers.
The analysts highlighted that US consumer confidence shows signs of both strength and caution. November data indicates that consumers are feeling increasingly financially secure compared with both last year and last month.
“They are deferring purchases less often,” the analysts wrote, adding that fewer consumers plan to increase savings or pay down debt.
Approximately 40.8% of US consumers reported feeling that they are saving enough to meet future needs, a figure that rose modestly both month-over-month and year-over-year.
In addition, concerns over employment are weighing on consumer sentiment. The survey found that 6.6% of consumers knew someone who had been laid off, a new post-COVID high, and roughly 51% expect more layoffs in the next six months.
“Among survey respondents, 4.4% said ‘I am concerned with being laid off,’” the analysts wrote, noting that this also represents a post-COVID high.
These concerns appear to be impacting overall confidence. US consumers’ perceptions of the economy’s trajectory deteriorated across all demographic groups in November.
“US consumers increasingly feel the US economy is on the wrong track,” the analysts wrote, noting that 31% said the economy is on the “right track” while roughly 47% disagreed, up 650 basis points year-over-year.
The UBS team also highlighted differences in spending intentions along political lines, with Republican respondents showing improved intentions and Democrats showing deterioration.
Looking specifically at softline spending over the next 90 days, UBS found that November data shows a 2.4% decline in spending intentions compared with November 2024, representing a month-over-month deceleration of roughly 290 basis points.
Holiday season spending plans also appear muted, with 24.7% of consumers planning to spend more, while 25% plan to spend less, a weaker-than-normal response according to the analysts.
Bullish on off-price retailers
Despite the mixed outlook, UBS expects certain retailers to perform well. “We see an almost ideal set-up for off-price retailers to take major market share,” the analysts wrote.
They noted that consumers’ financial resources combined with their desire to save money could drive strong interest in value-oriented off-price offerings.
They pointed to ‘Buy’-rated TJX Companies Inc (NYSE:TJX)and Burlington Stores Inc. (NYSE:BURL) as likely beneficiaries, while noting their ‘Sell’ rating on Kohl's Corporation (NYSE:KSS) and Macy's, Inc. (NYSE:M).