Large retailers monitor our spending habits. These are four things they have to say
It's a hesitant kind of anxiety. Given that consumers have started to cut down, large retailer chains like Walmart, Home Depot, and T.J.Maxx are preparing for a challenging year. Several stores, like Macy's and Best Buy, are already seeing the slowdown.
In recent weeks, financial reports from over a dozen businesses have been released in a flurry. They have a deep understanding of consumer spending, which is an important engine of the American economy. They state the following.
Despite cautious shop estimates, consumers are still buying
Holiday sales discounts and a mild January encouraged customers to go on an unexpected buying binge to start the year. Walmart, Costco, Target, Kroger, McDonald's, and other big-box and food corporations claimed rising sales as a result of increased costs for food and other necessities.
Chris Kempczinski, the CEO of McDonald's, predicted a "mild to moderate" recession in the US and claimed that while inflation would certainly continue, it has already peaked.
Generally, whether in Europe or the United States, the consumer is really holding up better than we might have probably imagined a year or six months ago, says Kempczinski.
The unexpected turns of last year, such as skyrocketing prices and Russia's war in Ukraine, hurt businesses, according to Arun Sundaram, who covers several retail and food industries at the equities research company CFRA. For another uncertain year, they thus wish to have minimal expectations.
Although predicting increased retail sales for the year, Walmart CEO Doug McMillon highlighted "a lot of unknown unknowns": "Customers are still spending money. ... It's obviously not as clear to us what the back half of the year looks like. ... We could tilt into a recession. We don't know what happens to consumer spending. We don't know what happens to layoffs, household income."
The current indulgences are food and cosmetics
Although predicting increased retail sales for the year, Walmart CEO Doug McMillon highlighted "a lot of unknown unknowns": "Customers are still spending money. ... It's obviously not as clear to us what the back half of the year looks like. ... We could tilt into a recession. We don't know what happens to consumer spending. We don't know what happens to layoffs, household income."
Customers have become selective (or "choiceful," as Walmart phrased it), buying fewer devices and spending their money on necessities rather than frivolous purchases. It was predicted by Best Buy, Kohl's, Walmart, and Target that 2023 would be the worst year ever for purchases of computers and other consumer electronics.
Kroger offers optimistic projections for the year as a result of higher grocery expenditure due to high food inflation. Meanwhile, fast food prices have gone up, but Wendy's CFO Gunther Plosch said that there hasn't been "any obvious resistance from customers" at the company's restaurants. (He said that Wendy's had the greatest price increases for fries and the greatest price decreases for meat.)
Shoppers also indulge at the perfume, skincare, and makeup shops. High expenditure on beauty goods has been cited by Target and Kohl's (which has a partnership with Sephora) as a strategy for reversing a decline in interest in other categories.
More of our money is now going into hobbies and vacation
Home Depot attributed a recent downturn in retail sales, among other things, to consumers allocating more of their spending money to activities and travel. The merchant said that while customers are still remodeling and doing renovations, they are being more cautious when purchasing expensive products like stoves, barbecues, or patio furniture.
The similar pattern was emphasized by both Best Buy and Macy's. This year, financial strain is projected to affect individuals of all income levels, according to Macy's CEO Jeff Gennette. Consumers seem to be in better health than they were in 2019. Employment and earnings are booming, and savings rates are higher than they have ever been. Yet, both revolving credit and inflation have outpaced wage growth. ... However, it is assumed that the desire to be with loved ones, travel on vacation, and attend events has not reduced, and anticipate gift-giving and occasion-based demand to continue. The allocation of discretionary money will continue moving toward services and needed products.
In that line, Costco CFO Richard Galanti cited a few preliminary indications that individuals may be beginning to spend more on items they may require for recreation, such as camping and water-sports gear. He also noted a decline in inflation. There are modest improvements in many areas, and commodity prices are beginning to decline. In some cases, they are still below pre-COVID levels, but they are still providing some relief for products like chicken, bacon, butter, steel, resin, almonds, and so on. Average transactions and frequency of purchases have increased. These indicators are encouraging, but it's clear that people are spending money where they believe they ought to be spending it.
Customers are migrating to store brands and cheaper retailers
Fast food companies like Wendy's are witnessing an increase in higher-income customers, who may be moving from more expensive eateries. These more affluent customers are a major factor in the growth of Walmart's food sales.
According to CEO Rick Dreiling, both Dollar Tree and bargain retailers like T.J.Maxx are reporting rising revenues as more people purchase there. The customer who earns $80,000 a year is downsizing. Many higher-income shoppers are turning to value shopping as a result of the present economic condition.
Also growing are store brands. Customers are increasingly choosing private labels over well-known national names, according to Costco, Kroger, Walmart, and Target. One example is Kroger's private label Home Chef. Indeed, these goods boost business earnings.
The record-low unemployment rate and savings individuals amassed during pandemic lockdowns, according to CFRA analyst Sundaram, have supported a large portion of current expenditure.
While consumers still have a propensity to spend, it is said that their capacity to do so has begun to dwindle and is now doing so at what may be a more worrying pace.
