US consumers have been changing their shopping patterns, opting to spend more at discount chains like Target and Walmart while reducing spending at higher-end retailers like Macy’s and Lowe’s. Target saw a 2% increase in sales at stores open for at least one year, with profits spiking 36% as a result of price cuts on popular items. The company’s stock surged 13% in response to the positive sales numbers and increased foot traffic in stores.
Target’s success can be attributed to consumer resilience in the face of inflation and higher interest rates, with shoppers being more selective in their spending habits. While the company expressed caution about the rest of the year, expecting sales to rise by up to 2%, they anticipate it may be lower. Walmart also saw a 4.2% increase in US sales last quarter, as well as other discount chains like TJX, the parent company of TJ Maxx and Marshalls, which posted a 4% sales increase.
Target has experienced fluctuations in sales over the past year, with a decline in stock performance compared to the S&P 500. The company’s middle-class customer base has shifted focus from discretionary goods to essentials, impacting Target’s sales of non-essential items compared to competitors like Walmart. While the chain has made efforts to increase food and essential items in stores, it still lags behind Walmart in that segment, which sees around half of its sales coming from groceries.
Despite consumers spending at discount chains, companies like Starbucks, McDonald’s, Home Depot, and Lowe’s have experienced declines in sales as people opt for more home-cooked meals over fast food and take on fewer major renovation projects. Macy’s has also seen a decrease in sales, with a 4% drop in quarterly sales at stores open for at least one year, leading to a cut in the company’s forecast for the year and a 7% drop in stock during pre-market trading.
Overall, US consumers are showing a tendency to prioritize value and focus on essentials, while being more selective in their discretionary spending. This trend has benefited discount chains like Target and Walmart, while posing challenges for higher-end retailers like Macy’s and Lowe’s. Despite cautious outlooks for the rest of the year, companies like Target are adapting to changing consumer behaviors and finding success through price cuts and strategic adjustments to their product offerings.
