According to some of the largest US retailers, consumers have retreated from buying clothing and electronics in recent months while continuing to spend on groceries and other necessities.
Macy’s Inc. M 11.11% and Best Buy Inc. BBY -2.12% said they expect sales to fall this year after falling in 2022 as stubbornly high inflation and other economic woes weigh on shoppers . Macy’s chief executive Jeff Gennette said he expects consumers to be worse off in 2023 than they were last year.
Shoppers are trying to stretch their budgets by buying more lower-priced private labels and smaller sizes of some items like paper products, said Rodney McMullen, managing director of Kroger Co. KR 5.42%, the largest US supermarket operator.
“They’re acting like they’re already in a recession,” Mr. McMullen said. At the same time, consumers are shopping more frequently than in recent months and, in some cases, are still spending heavily on products they want, such as B. Premium beer, he said.
Amid high inflation, people are spending more than ever on luxury items while still saving on other goods and services like groceries. Daniela Hernandez from the WSJ explains why. Photo composite: David Fang
The latest quarterly reports from retailers show a divergence in the wealth of sellers of consumer staples and staples or necessities. The Covid-19 pandemic gave sellers of everything from homewares to casual wear a powerful boost as homebound consumers shifted their spending away from services and activities outside the home.
As health restrictions eased, consumers returned to spending on travel, entertainment and services. Now, rising prices, shifts in the labor market and a downturn in corners of the stock market have contributed to a malaise that has hit shoppers across the country, retail analysts and executives said.
The Expense tap was not turned off completely. Americans’ spending showed unexpected strength in January, helped by rising incomes, according to data from the Commerce Department. Retail spending rose a seasonally adjusted 3% in the first month of 2023 from December, helped by spending on vehicles, furniture, clothing and restaurants. A measure of buyer sentiment, the University of Michigan Consumer Sentiment Survey has shown improvement in recent months from decade-long lows set last summer as inflation cooled.
Jeffrey Roach, chief economist at LPL Financial, a large independent broker-dealer, said he expects consumer spending to remain strong as long as jobs, wage growth and savings rates hold up.
However, Mr Roach noted that the shift from goods to services was slower than expected. Goods accounted for 33% of consumer spending in January, compared to 30% before the pandemic. As spending continues to fall back to pre-pandemic norms, that could equate to an additional $450 billion being sucked out of goods and services, he said.
To cope with increased inflation, people have cut back on some purchases and opted for cheaper private label products in some categories. Walmart Inc. WMT 0.25% said it gained more higher-income customers looking for deals on goods. Valuable brands like TJ Maxx parent company TJX TJX -0.20% Cos. and Burlington Stores Inc. BURL -2.35% continue to post sales growth.
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“It’s the middle that gets squeezed,” said Neil Saunders, chief executive of research firm GlobalData PLC.
Several retailers’ financial forecasts for this year reflect the challenges in forecasting consumer spending. Furniture and home decor retailer Big Lots Inc. BIG 5.68% on Thursday said it was not providing full-year guidance for the time being, citing above-average uncertainty in the macroeconomic environment.
Macy’s said sales could fall by as much as 3% this year. The retailer expects prices to rise slightly this year, but not as much as last year.
Sales are not expected to grow again before 2024 as consumers of all income levels remain under pressure, Mr Gennette said. One way the company hopes to increase sales this year is by adding 2,000 more brands to its online marketplace, which offers third-party items ranging from electronics to wine.
Best Buy CEO Corie Barry said in a conference call that she expects 2023 “to be the bottom point for the decline in technology demand,” adding that sales growth during the pandemic will translate into a larger base of installed devices in homes the Americans led. That should further boost demand, she said.
“On average, US households now have twice as many connected devices as they did in 2019, and consumers say more of their tech purchases are need-based than want-based,” she said. The company also expects to see the benefits of the normal cadence of replacements and upgrades as consumers tire of their early pandemic purchases, she said.
It has been easier for food and nutrition suppliers to achieve revenue growth. Walmart and Target Corp. said the food and beverage categories have helped them increase sales as more people spend time at home and prepare more food.
In recent months, Kroger’s supermarkets have attracted more customers from higher-income households as people eat out less or switch from more expensive retailers, Mr. McMullen said. He said on a conference call that higher-income consumers tend to be more profitable for Kroger as they shop more areas of the store, such as delis and bakeries.
Kroger said Thursday that same-store sales excluding fuel rose 6.2% year over year in its recently-completed quarter as shoppers continued to spend groceries. Results were boosted by a 10 percent increase in sales of private label products, which are generally priced lower than their branded competitors. Sales totaled $34.82 billion.
Inflation is also driving some of these increases. Federal data shows consumer food prices at grocery stores and supermarkets rose 11.3% in January from the same month last year.
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Kroger said it worked last quarter to reduce supply chain costs and manage high product cost inflation through improved sourcing. Kroger kept its profit margins roughly flat and delivered better-than-expected earnings.
Costco Wholesale Corp Executives COST 1.47% on Thursday said people are buying more groceries and staples but fewer large items, hurting sales. Shoppers flocked to warehouses for bulk purchases and were more attracted to Costco’s own-brand products in the quarter compared to a year earlier, Costco’s chief financial officer Richard Galanti said Thursday when speaking with analysts.
Comparable sales, which are those from stores or digital channels that have been in operation for at least 12 months, increased 6.8% year over year for the quarter ended February 12, excluding fuel and currency movements. According to FactSet, quarterly total net sales rose 6.5% to $54.24 billion, slightly below analysts’ expectations.
Macy’s quarterly profit fell 32% year over year to $508 million, but came in better than analysts expected, largely because the company was able to trim excess inventory without “chasing unprofitable sales.” , said Herr Gennette. He said the company was also able to offer buyers more targeted promotions.
The company’s comparable sales, or sales from stores open for at least a year and digital channels, declined 3.3% in the fourth quarter as people spent less online and in stores. Categories that performed well at Macy’s stores included beauty, tailored menswear, dresses and footwear, while athletic and casual wear declined year-on-year. At Bloomingdale’s, handbags and apparel showed weaker sales in the fourth quarter.
Department store chain Nordstrom Inc. JWN 1.74% said menswear performed exceptionally in the holiday quarter compared to the same period last year. However, the company said overall sales of its Nordstrom and Nordstrom Rack banners were down. It also said it would cease its Canadian operations after entering the country in 2014.
In the three months ended Jan. 28, Best Buy’s U.S. sales declined nearly 10%, dragged down by weak spending on products from computers and phones to home theaters and gadgets. The company noticed some bright spots and reported growth in video game products and tablets.
The company forecast a 3% to 6% decline in same-store sales. Total revenue is expected to be between $43.8 billion and $45.2 billion, according to FactSet, down from the $45.69 billion expected by analysts. The guidance for adjusted earnings was also lower than analysts had expected.
Shares in Macy’s gained 11% in Thursday trading, while shares in Best Buy fell 2.1%. Kroger shares rose 5.4%.
– Will Feuer and Jaewon Kang contributed to this article.
Write to Suzanne Kapner at [email protected] and Dean Seal at [email protected]
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