The Decline in Consumer Confidence and Its Impact on Retail

The U.S. retail sector is bracing for a challenging year ahead as American consumers pull back on spending, signaling a shift in confidence and behavior. Consumer confidence plummeted in the latest data from the Conference Board, marking the steepest monthly decline in over four years. This drop reflects growing concerns over inflation, as well as increased mentions of trade and tariffs in the board’s survey. The decline in confidence is particularly alarming, as it comes at a time when retailers are already grappling with the uncertainties of a global trade war.

The imposition of new tariffs by President Donald Trump on the U.S.’s three largest trading partners—Mexico, Canada, and China—has further complicated the outlook for retailers. These tariffs, which include a 25% levy on Mexican and Canadian imports and a doubled tariff on Chinese goods, have sparked immediate retaliation from affected countries. Mexico, for instance, has vowed to impose retaliatory tariffs on U.S. goods, while Canada and China are likely to follow suit. The escalating trade tensions have sent shockwaves through financial markets, raising fears of higher inflation and economic instability.

For consumers, the impact of these trade policies is already being felt. Target CEO Brian Cornell warned that prices for certain food items, such as avocados imported from Mexico, could rise in a matter of days. This comes as inflation appears to be inching higher after a period of relative stability. The uncertainty surrounding trade and tariffs has left families and businesses on edge, making it harder for retailers to predict consumer behavior and plan for the future.

Abercrombie & Fitch and the Retail Slowdown

Abercrombie & Fitch became the latest retailer to sound the alarm on its sales outlook for 2025, highlighting the broader challenges facing the industry. The company reported that it expects sales growth of 3% to 5% next year, a figure well below Wall Street’s expectations and significantly lower than the 16% growth it achieved in 2024. The news sent Abercrombie’s shares tumbling by more than 14% on Wednesday, adding to the nearly 46% decline the stock has seen so far this year.

Despite a strong performance in 2024, Abercrombie is finding it difficult to sustain momentum in the face of a slowdown. Neil Saunders, managing director of GlobalData, noted that while Abercrombie had an exceptional year in 2024, a moderation in growth for 2025 is reasonable given the current retail landscape. Saunders emphasized that the company’s outlook reflects the broader challenges facing the industry, including rising costs, shifting consumer preferences, and economic uncertainty.

Abercrombie is not alone in its caution. A growing number of retailers are sounding the alarm on a potential slowdown, with some, like Target, already experiencing declining sales and profits. While Abercrombie’s strong performance in 2024 makes it easier to absorb a moderation in growth, other retailers that struggled last year may face even greater challenges in 2025.

Target and the Broader Retail Landscape

Target, another major U.S. retailer, is also feeling the strain of the current economic environment. The company reported a decline in sales and profits last year, and CEO Brian Cornell warned that the start of 2025 will bring “meaningful pressure” on profits due to tariffs on imports from Mexico, Canada, and China. These tariffs are compounding other cost pressures, making it increasingly difficult for Target to maintain its margins.

The holiday season, typically a critical period for retailers, was particularly challenging for Target. Despite its efforts to attract shoppers with competitive pricing and promotions, the company saw fewer customers willing to open their wallets. Cornell noted that price hikes on certain items, particularly produce from Mexico, could be imminent, further squeezing household budgets. While he declined to specify which products might see price increases, the prospect of higher costs is likely to weigh on consumer spending in the coming months.

The struggles at Target are emblematic of a broader trend across the retail industry. Specialty retailers, such as Gap, American Eagle, Guess, and Zumiez, have all seen their shares decline this year, with some down by nearly 30%. Even Walmart, the nation’s largest retailer, is not immune to the challenges. Despite thriving in 2024, Walmart recently warned that its earnings for this year could fall short of Wall Street expectations by as much as 27 cents per share. The company also scaled back its sales projections for 2025, projecting annual sales growth of just 3% to 4%, well below the $708 billion forecast by analysts.

The Ripple Effects of Trade Tensions

The trade war with China, coupled with the new tariffs on Mexican and Canadian imports, has created a perfect storm of uncertainty for retailers. The imposition of a 25% tariff on Mexican and Canadian goods, with a slightly lower levy of 10% on Canadian energy products, has drawn immediate retaliation from all three countries. Mexico, for instance, has pledged to impose retaliatory tariffs on U.S. goods, though the specifics are still being worked out. Canada and China are also expected to respond in kind, further escalating the trade war.

The impact of these tariffs extends far beyond the immediate cost increases for imports. They have the potential to disrupt supply chains, drive up inflation, and dampen consumer and business confidence. For retailers like Target, which rely heavily on imported goods, the tariffs could lead to higher costs that are either absorbed by the company or passed on to consumers. Both scenarios present challenges, as absorbing the costs would