FedEx Earnings Put Discretionary Spending In Spotlight as Package Volume Drops

Declining package volumes in the latest FedEx earnings report stoked new concerns about discretionary spending.

This was after the company reported its fiscal second-quarter earnings Tuesday (Dec 19) night, which included its fourth straight quarter of declining package volume. The logistics giant had been saying for some time that macroeconomic conditions had been softening.

It might make sense that the most marked declines would show up in the Express unit, where consumers and businesses might rethink whether things absolutely, positively have to be there overnight. The FedEx earnings materials note that, in the United States, the average daily volume (measured in pounds) for overnight boxes was down by 13%. Drill down a bit, and the Ground Segment saw package volumes for home delivery were down 5.6% year on year and Economy package volumes in the latest quarter were down 35%.

Less Urge to Splurge

These last two metrics show that the pandemic-inspired urge to splurge has indeed petered out – which would include the buying, wrapping and sending of gifts to families and friends. And as CEO Raj Subramaniam noted on the post-earnings investor call about the overall backdrop: “I think the main macro issue in the United States is really the eCommerce reset. If you were to just follow along here, prior to the pandemic, eCommerce represented about 16% of retail. During the pandemic, it peaked at about 22%. And ever since, it’s been kind of going down. We are probably … 18% or 19% right now. It’s still higher than 16, but not quite as 22. So, that’s the part of the reset that’s going on in the U.S.”

To be sure, we’re getting fewer items delivered to the doorstep, partly due to the great reopening that has led us to leave the house. But the latest retail data underscore that even brick-and-mortar visits — and transactions — are under pressure. As has been reported, total retail sales slipped 0.6% in November, and the government stats show that sales at general merchandise stores and department stores were down 0.1% and 2.9%. respectively, from October. Sporting goods, hobby and book stores saw a 0.6% decline in the same period. These are, we note, among the most discretionary of purchases.

The spirit may be willing, but the wallet is weak. PYMNTS’ own data, presented in collaboration with LendingClub, found as holiday shopping approached its peak, 15 million consumers who shopped for holiday gifts in 2021 did not plan to do so this year. And while 79% of consumers planned to shop for the 2022 holiday season, that figure was down about 10% from 2021. The paycheck-to-paycheck economy — which includes 63% of U.S. consumers — has to choose between spending on groceries and gas and spending on life’s luxuries. Increasingly, it’s the essentials that must win out.