Walmart and Target win inflationary economy

The demise of the American buyer has been exaggerated.

New quarterly earnings reports and other data show that consumers are still spending. They just do it much more cautiously – and with a preference for large retailers. Inflation it gets coldto the point where The Federal Reserve is expected to cut interest rates next month. High mortgage ratesled by the Fed keeping general rates higher for longer, continues to discourage big-ticket spending home related projects.

These conditions affect brick-and-mortar retailers in different ways in different industry sectors. A series of quarterly earnings reports in recent weeks show that the retail market is somewhat polarized, with clear defeat and losers in an inclined the battle for consumer dollars.

“Portoles right now are tight,” Greg Zakowicz, senior e-commerce expert at marketing platform Omnisend, said in an interview. “Consumers are nervous and spending will continue to be more intentional through the end of the year.”

This cautious approach to spending underscores why Walmart (WMT) CEO Doug McMillion attributes the retail giant’s recent success to a focus on value and convenience. Those priorities helped Walmart attracts shoppers from all income bracketswith particular growth among wealthier consumers.

That’s partly why McMillion said during the company’s second-quarter earnings call this month that the retailer is price reduction on over 7,000 items in different categories. “Customers at all income levels are looking for value, and we have it,” McMillon said.

Lowering prices to attract inflation-weary consumers it’s a strategy that has also propelled Target (TGT). It worked because Target “had the right inventory and the right products,” said Mickey Chadha, a vice president at Moody’s. In May, Target said it would drop prices on more than 5,000 articles everydayfrom meat and bread to back to school essential.

As consumers become more and more intentional with their purchasesled in part by mounting credit card debtretailers are shift adaptation. They quickly realize that “if buyers don’t need an item or see value in it, they are I won’t buy itChadha said.

Walmart is online and the strategy in the store it is a cornerstone in the fierce competition the retail landscape. Its strong second-quarter performance, in line with the previous quarter, was largely driven by its focus on food — which is attracting shoppers and increasing store traffic, Chadha said. The approach even attracted higher-income consumers, expanding their customer base. According to a new report from the pedestrian traffic analysis firm Placer.aivisits to Walmart in the second quarter were up nearly 4% year-over-year.

Jerry Sheldon, vice president of technology at market research firm IHL Group, said that because inflation is still hitting middle-class consumers hard, those buyers are turning to discount stores like Walmart.

“Current economic conditions clearly favor Walmart,” Sheldon said, adding that as more consumers continue to “live paycheck to paycheck,” Walmart will gain even more market share.

Costco (COST) and BJ’s Wholesale are also thriving with a focus on value. Costco, for example, saw a 12.2 percent increase in visits year over year in the second quarter, according to Placer.ai. BJ’s saw a 7.4% increase over the same period. Shoppers also seem to linger around Costco locations longer, on average Costco rides take over 37 minutes. That’s despite Costco saying it will implement a Netflix-style crackdown on non-members.

Shoppers remain “value-focused in their purchasing behavior,” BJ Wholesale CEO Robert W. Eddy said during the company’s second-quarter earnings call this month. Executives mentioned the word “value” nearly 50 times during the company’s call, according to FactSet. Higher-income shoppers are looking for food, clothing and electronics, Eddy said, but big-ticket items like patios remain on the shelves.

“They’re waiting for a discount,” Eddy said of shoppers. “They’re waiting for the promotion.”

Instead, Macy’s is struggling — and the department store is well aware from her.

“The consumer is more discriminating,” Macy’s CEO Antony Spring told investors during the company’s earnings call last week.. Macy’s has struggled sales behind and grew competition from online and discount retailers. Earlier this year, Macy’s said it would they are closing hundreds of stores and laying off workers in an effort to reduce costs and streamline operations.

Off-price retailers like TJ Maxx capitalize consumer change towards value.

TJ Maxx parent TJX (TJX) reported a 6% increase in sales in its last quarter, driven by low prices. TJX CEO Ernie L. Herrman told investors this month that the company is “convinced that consumers will continue to look for value.”

That Home Depot and Lowe’s navigate these trendsrival home improvement merchants will need to adapt their strategies to address increasing competition and changing consumer preferences. Even higher-income consumers, who are more likely to make home improvements, are putting off spending because of higher interest rates — and expectations of future rate cuts, said Christina Boni, senior vice president of corporate finance at Moody’s Ratings, in an interview.

“The home category is taking a breather,” Boni said. “Consumers are shifting spending to other areas such as services, travel and entertainment.”

Micahel Zakkour, chief strategist at business consultancy 5 New Digital, said consumers are now “looking for better experiences, small luxuries, deals on staples and little travel for big items and projects”.