Troubled retailers face a Halloween crunch with consumers spending less

(Bloomberg) — A predicted slide in Halloween consumption is the latest blow for heavily-indebted retailers battling mounting overheads and the trend of consumers trading down to cheaper products.

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US spending for the holiday will drop by 5% to $11.6 billion this year, according to the National Retail Federation. Sales of greeting cards and costumes are likely to see the greatest decline, a hit to merchants reliant on seasonal splurges in what’s already been a tough year for the industry.

Households on the lower end of the income scale are broadly struggling as unemployment has edged higher this year and underlying inflation has remained persistently high. Retailer Michaels Cos. said on a recent earnings call that households earning less than $100,000 are retrenching, resulting in lower basket sizes.

“2024 has been a perfect storm for retailers of all stripes,” said Erica Weisgerber, a partner at law firm Debevoise & Plimpton LLP. “Inflation, high operational costs, and reduced consumer spending have been especially challenging for brick-and-mortar retailers, and online retailers have struggled with steep competition from e-commerce giants like Amazon.”

Many of the troubled firms, including Michaels and At Home Group Inc., are owned by private equity managers after buyouts during the pandemic proved ill-timed when interest rates rose and inflation crimped household budgets. Home, clothing and hobby retailers dominate the list of distressed retailers because the size of their debt means they lack the liquidity to compete with better capitalized competitors, according to Moody’s Ratings.

Still, Michaels and At Home are hopeful that they can win a larger slice of the holiday spending. Hellman & Friedman LLC’s At Home saw a strong start to Halloween spending after flat second-quarter net sales of about $443 million, chief financial officer Jerry Murray said on a September earnings call.

Apollo Global Management Inc.’s Michaels also saw a revenue pop tied to Halloween as customers began to buy inventory earlier this year, according to people on last month’s earnings call. That’s a fillip for the firm whose earnings declined by about 20% to $50 million in the second quarter from a year earlier, the people said, asking not to be identified as the information is private.