The Impact of Student Loan Payments on Retailers

Nike, Urban Outfitters, and Foot Locker Face Potential Setbacks

According to analysts at Jefferies, retailers such as Nike, Urban Outfitters, and Foot Locker may experience a decline in sales as families with student loan payments need to limit their spending on clothing and sneakers.

Jefferies analyst Randal Konik has downgraded Nike shares from Buy to Hold, with a lowered price target of $100 (previously $140). Corey Tarlowe, another analyst at Jefferies, has also lowered his ratings on Urban Outfitters and Foot Locker from Buy to Hold, while reducing their price targets to $31 (from $42) and $18 (from $28) respectively.

Consumer sentiment has weakened due to rising interest rates and persistently high inflation, putting pressure on shoppers. Additionally, several companies have reported softness in consumer demand, including Foot Locker, which revised its full-year outlook downward in August.

However, inflation and interest rates are not the only concerns.

In a recent survey conducted by Jefferies, U.S. consumers with outstanding student loan debt revealed that between 46% and 54% of respondents plan to spend less on apparel and footwear once student loan repayments resume on October 1. These payments were previously suspended in response to the Covid-19 pandemic.

"Our survey results suggest that the resumption of student loan repayments could further weigh on already soft sales within the specialty apparel sector," said Tarlowe.

Neither Nike, Urban Outfitters, nor Foot Locker have provided immediate comments regarding these findings.

As a result of this news, Urban's shares dropped 3.9% in premarket trading to $30.65, while Foot Locker experienced a 2.7% decline to $17.28.

Konik shares a similar perspective, stating that a majority of U.S. consumers with student debt are concerned about meeting their monthly expenses and are likely to cut back on apparel and footwear spending.

"Our survey respondents indicated a preference for cheaper alternatives within the apparel/accessories and footwear categories, suggesting potential headwinds for higher-priced offerings from Nike," explained Konik.

In response to these insights, Nike's shares decreased by 1.5% to $89.50.