Fitch downgrades 2025 U.S. retail outlook amid tariff concerns

Fitch Ratings has revised its 2025 outlook for the U.S. retail and consumer products sectors from Neutral to Deteriorating, citing concerns over newly announced tariffs and their potential impact on consumer spending.

The report warns that rising retail costs and weakening consumer sentiment could drive up prices and depress sales volumes, especially in discretionary categories such as apparel, home goods, and consumer electronics. While most Fitch-rated companies have sufficient financial flexibility to withstand volatility, weaker players facing operational challenges could see negative rating actions.

Higher-rated retailers and manufacturers with strong vendor relationships and cash reserves are expected to navigate near-term pressures more effectively. However, companies struggling with operational erosion may face intensified competition, leading to potential market share consolidation.

Consumer spending remained resilient in 2024 due to low unemployment and wage growth, but Fitch predicts a tougher economic environment in 2025. Inflation, high interest rates, and weakened consumer confidence are expected to erode purchasing power, particularly among middle- and lower-income households.

Retail sales and consumer product revenues are forecast to be flat or slightly negative next year, with discretionary categories seeing the sharpest declines. Staples, such as groceries and household essentials, are projected to fare better.

Fitch notes that many U.S. retail products are partially sourced abroad, with diversified supply chains now facing greater tariff exposure. New “Liberation Day” tariffs targeting imports from Vietnam, Cambodia, and India could further disrupt the retail landscape. Food retailers, however, are expected to be less affected due to predominantly domestic sourcing.

Inflation’s impact is anticipated to hit lower-income households hardest, though discount retailers may benefit from value-driven consumers. While higher-income shoppers have remained resilient, financial market volatility could dampen their discretionary spending.

Fitch suggests that some retailers may gain from strong execution and the fallout of weaker competitors. Companies with significant international exposure may see less pronounced effects from the tariffs.

The revised outlook marks a notable shift in Fitch’s 2025 projections, underscoring growing economic risks and the broader effects of policy changes. Fitch advises retailers to focus on operational flexibility and strategic planning to weather the evolving landscape.