Recent research from RBC Capital Markets delves into the ‘2025 Global Consumer Outlook,’ shedding light on the challenges and opportunities shaping consumer markets worldwide.
Through a comprehensive analysis of various regions and sectors, the report underscores key trends expected to impact consumer behavior and retail performance in the upcoming year.
Navigating a Complex Consumer Environment
RBC analysts point to the financial strains facing global consumers, citing factors like heightened inflation, high interest rates, and unemployment as key contributors. These challenges are anticipated to impact consumer fundamentals well into the first half of 2025.
The report also highlights a shift in consumer preferences towards value-driven strategies, such as smaller basket sizes, a preference for private labels, and a leaning towards discount retail channels. Luxury spending is subdued, with consumers showing a preference for value-oriented dining options and home-cooked meals.
Global and Regional Trends
While consumer trends may vary by region, several overarching themes emerge:
1) As inflation pressures ease, an emphasis on volume and unit growth is expected to drive stock outperformance.
According to RBC analysts, organic growth is likely to rely more on volume in the coming year, as inflation subsides and promotional activities increase in response to a challenging consumer landscape.
2) With the US election settled, attention has shifted to potential policy changes under a second Trump administration. Concerns revolve around new tariffs that could pose regulatory hurdles.
Companies are exploring ways to mitigate costs through enhanced productivity and pricing adjustments. However, analysts caution that these cost pressures may be passed on to consumers, potentially hindering growth and exacerbating inflation.
3) Trade policies, including proposed tariffs and geopolitical risks, present ongoing challenges. The report raises concerns about slower growth in Latin America and potential currency fluctuations impacting market performance.
4) Rising costs, fluctuating demand, and currency volatility are expected to test profitability.
Analysts anticipate a year of balancing margin dynamics, including moderating demand, varying volumes, evolving pricing strategies, and other external factors that could impact financial performance.
5) Despite anticipated improvements, consumer sentiment and spending in China remain subdued. Shifting consumer preferences, such as a growing interest in secondhand goods and alternative retail platforms, indicate changing market dynamics.
6) As organic growth becomes more challenging, M&A activity is predicted to accelerate. Favorable conditions for consolidation are expected in the latter half of the year, driven by stable interest rates and reasonable valuations.
Within specific sectors, RBC highlights key themes in Consumer Staples, Luxury & Premium Brands, and Restaurants & Leisure.
Consumer Staples face ongoing pressure from sluggish volume growth and economic uncertainties. Despite recent underperformance, RBC advises caution due to potential earnings risks related to inflation and regulatory changes.
In the Luxury & Premium Brands sector, RBC anticipates stable or modest revenue growth, particularly in North America. LVMH emerges as a top pick, favored for its diversified category mix and potential for revenue growth in Fashion & Leather.
Looking ahead to 2025, analysts express cautious optimism for the restaurant industry.
While economic indicators suggest a stabilizing environment, gradual improvements are expected as consumers navigate higher prices. However, the fitness sector is viewed more favorably, with a growing emphasis on health and wellness among consumers.