Fitch Ratings has revised its 2025 forecast for the U.S. retail and consumer products sectors, changing its outlook from Neutral to Deteriorating. This adjustment reflects concerns over the recently announced tariffs, which are expected to impact consumer spending as sentiment weakens and retail costs rise.
The report indicates that most Fitch-rated companies in these sectors have sufficient rating headroom to maintain stability despite ongoing volatility. However, businesses heavily reliant on discretionary categories, such as apparel, home goods, and consumer electronics, may face negative rating actions due to operating challenges and financial policy decisions. The tariffs are likely to drive up consumer prices and negatively affect retail volumes, while manufacturers and retailers absorbing some costs may experience further margin pressures.
Higher-rated retailers and manufacturers, equipped with strong vendor and consumer relationships and healthy cash positions, are positioned to navigate near-term challenges more effectively. Conversely, weaker market players struggling with operational erosion could face intensified challenges, potentially leading to market share consolidation among stronger competitors.
Consumer spending in 2024 remained resilient due to low unemployment and wage growth, even in the face of significant inflation. However, Fitch warns of a deteriorating economic outlook for 2025, with weaker consumer sentiment, persistent inflation, and higher interest rates expected to weigh on purchasing power, particularly among middle- to lower-income households.
Retail sales and consumer products revenue for 2025 are now anticipated to be flat to slightly negative, with discretionary categories seeing the sharpest declines. Staples categories could provide some relief, as their performance is predicted to be more stable. Fitch had already projected declines in revenue across many discretionary segments before the tariffs were announced, citing less compelling upgrade cycles and declining consumer sentiment. The new tariffs are expected to exacerbate these trends by driving up prices and impacting consumer health and sentiment overall.
The report highlights that many U.S. retail products are partially sourced abroad, and diversified supply chains beyond countries like China are now facing tariff exposure. The newly implemented “Liberation Day” tariffs targeting nations such as Vietnam, Cambodia, and India could further affect the retail landscape. However, food retail is likely to be least impacted, as domestic sourcing remains prevalent for grocery inventory.
Inflation’s effects are anticipated to disproportionately impact lower-income households. Value-focused retailers may gain a competitive edge with lower-cost offerings but could still face volume declines in discretionary spending. While higher-income consumers have shown resilience, recent financial market volatility could dampen their purchasing power as well.
Fitch suggests that some retailers may ultimately benefit from strong operational execution and the competitive fallout of weaker players. Though the majority of the report focuses on U.S.-centric trends, it notes that certain companies with significant international exposure could see less pronounced effects from the tariffs.
This revision marks a significant adjustment to Fitch’s earlier 2025 predictions, reflecting mounting economic challenges and the broad implications of policy changes. As stakeholders in these sectors brace for a challenging year, Fitch emphasizes the importance of operational flexibility and strategic planning in navigating the evolving landscape.