The narrative that American shoppers are disappearing is exaggerated. Recent quarterly earnings reports and other data reveal that while consumers continue to spend, they are doing so more cautiously and tend to favor big-box retailers. With inflation easing and expectations for the Federal Reserve to lower interest rates next month, many shoppers are deterred from spending on costly home projects due to high mortgage rates. These economic factors are impacting brick-and-mortar retailers differently across various sectors. Recent quarterly earnings highlight a divided retail market, where clear winners and losers are vying for consumer dollars.
"Wallets right now are tight," according to Greg Zakowicz, a senior e-commerce expert at Omnisend. He noted in an interview that consumers are apprehensive, and this trend of deliberate spending is expected to persist through the year's end. This mindset explains why Walmart attributes its success to a focus on value and convenience, a strategy that has drawn customers from all income levels, including wealthier consumers. Walmart CEO Doug McMillon mentioned that the company is cutting prices on over 7,000 items to cater to inflation-weary customers.
This price-cutting strategy has also benefited Target, which successfully lowered prices on more than 5,000 everyday items. Mickey Chadha, a vice president at Moody’s, noted that Target's success stemmed from having the right inventory and products. As consumers become more strategic with their purchases due to rising credit card debt, retailers are adjusting. They are realizing that if shoppers don't perceive a need or value for an item, they won’t purchase it.
Walmart's combined online and in-store approach remains a vital part of its competitive strategy. Their steady second-quarter performance was largely fueled by a focus on food, which not only attracts customers but also increases in-store traffic. This strategy has broadened Walmart's customer base, including higher-income consumers. Foot traffic analytics from Placer.ai reported a nearly 4% increase in visits to Walmart year-over-year during the second quarter. Greg Sheldon from the IHL Group highlighted that Walmart is in a favorable position because middle-class consumers are still feeling the pinch of inflation and prefer budget-friendly stores.
Other retailers like Costco and BJ’s Wholesale are thriving due to their focus on value. Costco saw a substantial 12.2% increase in visits year-over-year during the second quarter, while BJ’s saw a 7.4% increase. Despite Costco's new restrictions for non-members, shoppers are spending more time in their stores. BJ’s CEO Robert W. Eddy stated that customers remain focused on value, though they’re waiting for markdowns on big-ticket items.
In contrast, Macy’s is struggling with declining sales and increased competition from online and discount retailers. They're aware of consumers being more selective, which has led them to close stores and lay off workers to reduce costs. Meanwhile, T.J. Maxx is benefiting from the consumer shift toward value, reporting a 6% increase in sales. CEO Ernie L. Herrman expressed confidence that consumers will continue seeking value.
For Home Depot and Lowe's, navigating these trends means adapting strategies to tackle growing competition and changing consumer preferences. Despite having a higher income bracket, consumers are postponing home improvement projects due to high interest rates, as noted by Christina Boni from Moody’s Ratings. Consumers are redirecting their expenditures toward services, travel, and entertainment. Michael Zakkour from 5 New Digital mentioned that shoppers are currently seeking better experiences, small luxuries, and bargains on essentials rather than splurging on large projects.