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Consumers will tighten their purse strings as federal student loan payments resume – and a slew of retail stocks could take a hit, UBS found. Softline stocks – that is, companies that make and sell clothing, bedding and other soft goods – are underperforming the S & P 500 by 16.3 percentage points in 2023, according to the bank. That lagging performance is expected to continue, especially since the debt ceiling legislation includes a provision that will end a pause on federal student loan payments by September, according to UBS analyst Jay Sole in a Sunday report. The firm reiterated its bearish view on softlines. The reprieve on debt repayments dates back to March 2020 , and was part of a slate of Covid-relief measures. The savings for borrowers was sizeable, considering the average bill is about $400 a month . The resumption of payments will likely force them to rethink their budgets. “Our new analysis of U.S. consumers with student loans suggests they are likely to disproportionately reduce spending on softgoods vs. other categories as they shift funds to paying down student debt,” said Sole. The bank polled 1,392 U.S. consumers with student loans. The analyst noted that these consumers prefer brands over private labels and specialty retailers over discounters, meaning companies such as American Eagle Outfitters , Crocs , Canada Goose , Nordstrom and Nike are most likely to be hurt. A preference for trendy names More than 6 of 10 of those polled in UBS’ research said that brands are important to them, compared to 53% of the entire U.S. population. For instance, nearly 37% of the student loan consumers bought Nike products, compared to about 29% of all U.S. adults. More than 15% of these borrowers have purchased Crocs, versus 10% of all U.S. adults. About 62% of the consumers polled agreed with the statement, “My philosophy of spending is ‘Live for today because tomorrow is so uncertain,'” the bank found. “Taking a step back, this trend concerns us because it implies potential for a big drop-off in spending if consumers’ incoming cash flow slows or credit becomes less available or less affordable,” Sole wrote. – CNBC’s Michael Bloom contributed to this report.
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