Consumer behavior often helps gauge the overall health of the economy. When economic pressures intensify, spending patterns often shift, highlighting volatility and potential downturns in the market. Monitoring these trends helps anticipate broader market dynamics and assess the resilience of the U.S. consumer.

Covering companies across the home and outdoor space, as well as automotive parts and services and discount and convenience retailers, William Blair’s Phillip Blee, research analyst in the consumer sector, observes consumer behavior for both larger-ticket discretionary and necessities-based purchases. He discusses supplier networks, consumer confidence, and how retailers may try to balance trade tensions.

Phillip Blee, Research Analyst, Consumer, Equity Research
How are companies preparing for further developments related to trade tensions?
Companies across my coverage remain very cautious heading into the second half of the year, given the lack of visibility into ever-changing tariffs and the derivative impact on the health of the consumer. Generally, companies are planning inventory assuming reciprocal tariffs are 30% for China and 10% for the rest of the world. Still, companies are planning with an additional layer of caution as tariff regulations evolve, with many citing potentially higher levies on Vietnam as one of the biggest risks. Most retailers are planning to prioritize inventory from quality brands investing in new products and marketing, likely at the detriment of various brands, styles, and colorways; we could have fewer options than usual when shopping this upcoming holiday season.
How would you gauge retailers’ mindsets regarding reshoring, diversifying supply chains, and adjusting sourcing?
Management teams seem to agree that sourcing from China remains a long-term risk, so most companies across my coverage are focusing on diversifying their supplier network, with many targeting to largely exit China by the end of 2025. The majority seem to be shifting supply chains across a wider set of countries throughout southeast Asia to minimize exposure to a potential tariff hike on individual countries. A few companies across my home and outdoor coverage indicated plans to expand their pre-existing domestic sourcing efforts. Still, more broadly, most management teams indicated that reshoring production is not feasible, given the higher wages and lack of skilled labor.
What’s your sense of consumers’ confidence? Are there any discretionary spending trends you’re seeing?
Coming out of William Blair’s 45th annual Growth Stock Conference, most of the management teams across our sector indicated the consumer has largely remained resilient. That being said, consumers seem to be increasingly selective about what they’re spending on, particularly any dollars allocated toward discretionary purchases. We started to see a bit of this more recently, where several major retailers in the mass-market or value/discount space saw comparable demand across discretionary product categories fall into negative territory. Our analysts will watch to see if those trends continue in the second quarter and the remainder of the year. Particularly, we’ll focus on June and July, as tariff-related inventory disruptions and price increases impact the major retailers.

Many companies I cover have already enacted some form of price increase—or plan to over the next month or so—to offset the impact of tariffs. Most use price as a last resort after negotiating with vendors, shifting sourcing, value-engineering products, and reducing costs throughout the supply chain where applicable.

Phillip Blee, Research Analyst, Consumer, Equity Research

What impact could renewed or higher tariffs have on product pricing and gross margins for retailers with significant exposure to imported goods? Would retailers absorb tariff-related costs, pass them to consumers, or find efficiencies elsewhere?
Many companies I cover have already enacted some form of price increase—or plan to over the next month or so—to offset the impact of tariffs. Most use price as a last resort after negotiating with vendors, shifting sourcing, value-engineering products, and reducing costs throughout the supply chain where applicable. Management teams indicated that some price increases could be temporary as companies continue to advance diversification efforts. By and large, most companies don’t plan to take any sort of hit to their margin in the long term, with any headwind expected in 2025 likely to be reversed over the next year or so through many mitigation efforts, including price.
What subsets of retail are most at risk when it comes to higher tariffs and trade uncertainty? Where are retailers’ heads when it comes to absorbing tariff-related costs?
Retailers with a high sales contribution from discretionary categories likely maintain the most risk to ongoing trade uncertainty, particularly those with an assortment that maintains more significant exposure to Chinese sourcing. This includes toys, consumer electronics, and home goods. Retailers in this space are trying to manage a lot of moving pieces, such as minimizing the bottom-line impact of tariffs, utilizing price as a mitigation tool without deleveraging fixed costs on lost demand, and planning inventory buys for the all-important holiday season against an uncertain macro and trade backdrop. So, there’s a lot of risk in retail right now, which will likely continue until we get some visibility into what longer-term trade deals may look like.
When it comes to how consumers will react to higher prices stemming from tariffs, are there any tipping points you watch for?
We will continue to monitor demand trends across discretionary categories, with an emphasis on retailers in the value or discount space. If the consumer is feeling incrementally pressured or has any element of “sticker shock,” they often trade down to lower price point offerings. However, if the consumer completely pulls back on discretionary purchases, even the value-based players will begin to experience a deceleration. In our view, this would be a key tipping point indicative of an incrementally weaker consumer. Our analysts haven’t seen that yet, but it’s certainly something we’re keeping a close eye on.