Student loan repayments will resume on October 1 after more than three years of forbearance on the part of the federal government.
Retail businesses are bracing for an industry-wide slowdown as borrowers contend with diminished purchasing power and smaller budgets.
According to Jefferies economist Tom Simons, the resumption of federal student loan payments is expected to create a major drag on personal income and could lead to an $18 billion month-over-month drop in consumer spending.
The anticipated financial shock to consumers and the consequent impact on customer-facing businesses was highlighted by retail executives at Goldman Sachs’ 30th annual Global Retailing Conference.
The conference, which took place on September 12, featured many large businesses like Lowe’s, Home Depot, and Walmart, as well as many small-to-medium-size retailers like Warby Parker and Sprouts Farmers Market, among others.
Rural lifestyle giant Tractor Supply Co. was one such company that spoke on the return of student loan repayments at the conference.
“The student loan repayment is certainly one that we watch,” said Kurt Barton, chief financial officer at Tracker Supply Co., Yahoo! Finance reported.
Barton claimed that anytime something removes money from the consumer’s wallet, it creates financial hardship and reduces spending on nonessential goods and services.
“So, I think it’s one to be very conscious of,” he cautioned.
According to a 2023 survey by U.S. News & World Report, the vast majority of borrowers are ill-equipped to handle the upcoming payments, with many claiming they will face financial hardship once forbearance ends.
Of the roughly 1,200 former college students with outstanding student loan debt who participated in the survey, about half said they would have a hard time paying other bills, 43% said they would have to postpone other financial goals, and 36% said they would not be able to contribute toward their savings.
One of the biggest retail sectors likely to see consumer pullback is apparel, according to UBS analyst Jay Sole. This could be bad news for retailers like American Eagle, Crocs, Nordstrom, Nike, Under Armour, and others, said Sole, per Yahoo! Finance.
However, JPMorgan analyst Christopher Horvers claimed that retailers with a high discretionary product mix are also vulnerable to the upcoming headwinds. He pointed to companies like Best Buy, Home Depot, Lowe’s, Costco, and Walmart as the retail groups facing the higher risk.
