US firms grapple with economic divide as lower income struggles mount
By Juveria Tabassum and Niket Nishant
(Reuters) -U.S. companies across industries are feeling the squeeze from the deepening split between lower-income and affluent consumers as tariffs pile on more uncertainty.
Executives at bellwethers such as Coca-Cola, along with toymakers, hoteliers and financial-service providers have noted how lower-income households are canceling or delaying purchases, exposing a hidden belt-tightening even as affluent consumers keep U.S. spending afloat.
"There is bifurcation in the consumer behavior," Andre Schulten, CFO at consumer goods giant Procter & Gamble, said Friday, adding that while financially secure consumers are buying larger pack sizes, those living paycheck to paycheck are seeking out deals as inflation remains above the U.S. Federal Reserve's preferred 2% target.
While some estimates have shown steady headline spending, consumer sentiment surveys show pessimism over future conditions and inflation, which is currently rising at a 3% rate, according to federal data.
Nearly two-thirds of customers, up from 59% last year, plan to wait until Thanksgiving weekend for most of their holiday shopping to take advantage of discounts, according to a National Retail Federation survey.
Brad Beckham, CEO of O'Reilly Automotive, said some customers were delaying major repairs even as the replacement auto-parts retailer raised its annual revenue target.
Some companies, like Procter & Gamble and Coca-Cola, are experimenting with smaller-sized products aimed at lower-income consumers. Coca-Cola introduced mini single-serve cans of some of its sodas in U.S. convenience stores earlier this month.
"Our system in the U.S. is adapting to both the higher and the lower end, and both offer opportunities and challenges. At the lower end, affordability and value are really important," Coca-Cola's CFO John Murphy told Reuters.
Meanwhile, Target, which predominantly stocks non-essential products that lower-income consumers have steered clear of, is cutting about 1,800 jobs as part of a turnaround. It will report results next month.
While the broad-market S&P 500 has gained nearly 15% this year, the SPDR Consumer Staples ETF, which tracks companies that sell basic consumer needs, is up less than 1% in that period.
CREDIT MARKET JITTERS RAISE WORRIES
The credit market has been rattled by several bankruptcy filings by lenders that predominantly serve lower-income groups.
PrimaLend Capital Partners, which finances car purchases for customers with poor or limited credit through the "buy-here-pay-here" auto market, filed for bankruptcy earlier this week.
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