Walmart earnings show wealthier shoppers use Walmart for groceries
The National Retail Federation Predictions for the Fourth and Fifth-Strong Year of a Low-Cost Inflationary Year: Consumer Prices and Online Spending
The National Retail Federation is expecting holiday sales to increase between 6 and 8 percent this year compared to a year ago.
Families will likely downsize their list of recipients, turn to credit cards, and dip into savings in order to afford holiday gifts this year, according to an industry forecast Thursday.
Americans spent more to keep up with high prices. Retail sales increased by 7.6% in the month of November to December compared to the same period last year according to the Mastercard Spendingpulse. US retail sales fell in November, the lowest performance in more than a year.
Although consumers are feeling the pressure of inflation and higher prices, households in various income brackets are responding differently to how their budgets are impacted, NRF president and CEO Matthew Shay said in a statement, but consumers overall still remain resilient and continue to spend.
The group said that the holiday online will increase between 10% and 12% to between 262.8 billion and $267.6 billion.
After the holidays and a warm January, many shoppers went out to malls and stores to buy things for the new year. Big-box and food giants — Walmart, Costco, Target, Kroger, McDonald’s and others — reported growing sales thanks to higher prices on food and essentials.
That compares unfavorably with last year’s robust 15.1% increase, but this year’s expected slower growth is in line with where holiday retail sales were trending pre-pandemic.
Walmart
(WMT) forecast slower sales and profit growth, disappointing investors and sending its stock down during morning trading Tuesday.
“The consumer is still very pressured,” Walmart CFO John Rainey told CNBC. Balance sheets are thinner and savings rates are falling relative to previous periods. We take a fairly cautious outlook on the rest of the year.
Consumer prices soared by 7.1% year-over-year in November. At almost any other point in the past 40 years, that would be alarmingly high. But this marked the fifth-straight month of improvement and a significant cooldown from 9.1% in June. It’s also the lowest annual inflation rate in nearly a year.
What is the need now that you have it? The dilemma of a clothing retailer during the post-pandemic boom and the disappearing inventory glut
Fast food spots like Wendy’s are seeing more higher-income customers, who may be switching from pricier restaurants. These wealthier shoppers are also key drivers of Walmart’s growing grocery sales.
It’s now the hottest question for clothing retailers, whether they have an “inventory glut” and if there is too many extra styles, sizes or colors.
Brian Ehrig is a partner in the consumer practice of the consulting firm Kearney, and he says they have seen it all. “We’re talking tops, bottoms, sleepwear — all of those products are really seeing quite a glut.”
A clothing store does a bit of a balancing act, trying to predict trends and order goods months in advance. That was more difficult because of the Pandemic. First, in a blink of an eye, lockdowns had millions of people trading their office clothes for sweatpants and house dresses. The malls were emptied out as shoppers stayed home.
Next came a shopping boom. Retailers were ordering more and more. Everything changed again, after the sudden travel bonanza, in person parties and the return to office.
Through it all, shipments from Asia have seen lots of disruptions. Remember last winter’s delays and shortages? Many stores have no plans to repeat this year’s Christmas demand, so they put those orders earlier than usual.
“No one wants to miss the Holiday season, you really need that product,” says the senior research analyst at Telsey Advisory Group. You have too much now that you have it. That’s the dilemma.
For example, Nike CFO Matt Friend said the company had “a few seasons landing in the marketplace at the same time” as delayed shipments for spring, summer and fall seasons arrived too late just as holiday orders began arriving early.
“It added to a confluence of events, retailers getting some inventory late, orders that they didn’t really need, and consumer demand slowing,” Fernndez says.
Target, Kohl’s and other retailers say higher food and gas prices are discouraging people from discretionary purchases — with clothes rarely deemed a necessity.
Less demand means less inflation: Apparel prices are up less than other goods, only 4% higher than a year ago, actually falling for the past two months. Spending at clothing stores rose about 3% in October compared to last year, and is expected to decline over the holidays.
Adam Davis is the managing director at Wells Fargo who works with department stores and other retailers.
Does this mean widespread discounts for the holidays? Davis, Ehrig and Fernández all say, yes, very likely. Will people decide they actually want more clothes? That’s a whole other thing.
The US Economy in a Superbluster 2008-2009 Season: Motivations, Support, and Implications for a Soft Landing in 2023
It was a brutal period for the stock market, with roughly one-fifth of the value of the S&P 500 vanishing and the Nasdaq dropping by more than one-third. All three major US markets suffered their worst years — by far — since 2008.
Hiring is surprisingly resilient. The economy added a robust 263,000 jobs in November, and the unemployment rate is just 3.7% — down dramatically from nearly 15% in the spring of 2020.
New numbers published last week show first-time applications for unemployment benefits edged up to 225,000. It is historically low and almost where it was a year ago before fears of a recession emerged.
This is one reason to believe the economy could survive a recession, according to Mark Zandi of Moody’s. It is unlikely that consumers will stop spending and the economy will suffer a downturn without mass layoffs.
If this trend continues, it could significantly lower the risk of a recession. But if inflation remains well above the Federal Reserve’s 2% target, that would be problematic.
Source: https://www.cnn.com/2023/01/02/economy/recession-or-soft-landing-in-2023/index.html
Macy’s CEO Jeff Gennette: Consumer Pressure in the First Half of the 2023 Recession, after Gas Prices Rises above $5.10 a Gallon
The price of gas spiked above $5 for the first time this year in June. The national average for regular gasoline has been falling for 18 months and is now at an 18-month low of $3.10 a gallon.
But that trend has begun to reverse, at least when measured on a monthly basis. Real wages have grown at a higher rate than consumer prices, giving consumers more money in their pockets to spend next year.
If the Fed hasn’t already done that, the fear is that it will end up hiking rates so high that there will be a recession.
Federal Reserve Chairman Jerome Powell has made it clear the Fed isn’t anywhere near ready to hit the gas on the economy by cutting rates. But just removing its foot from the brake would be a positive.
Macy’s chair and CEO Jeff Gennette said lulls during the non-peak holiday weeks “were deeper than anticipated” and that consumers will continue to feel pressured into 2023, in a Q4 update Friday.
Macy’s said Friday its net sales from the holiday quarter will likely be at the low-end to mid-point of its previously issued range of $8.16 billion to $8.4 billion. The retailer said that its adjusted earnings per share are expected to be between $1.50 and $1.67.
Gennette said that its occasion apparel and gift giving business was strengths, and inventory composition and prices were aligned with customers’ needs.
“Based on current macro-economic indicators and our proprietary credit card data, we believe the consumer will continue to be pressured in 2023, particularly in the first half, and have planned inventory mix and depth of initial buys accordingly,” the Macy’s CEO said.
The Implications of Consumer Spending on The U.S. Economy and the Inflationary Season: Retail and Food Companies are Facing
Walmart will raise its minimum wage to between $13 and $14 an hour in order to keep store workers in low wage industries. Home Depot said Tuesday it will spend $1 billion this year to raise wages and other compensation.
Walmart’s raise will impact profit, squeezing margins at the same time as its core lower-income shoppers continue to be hit by inflation, which could dent its sales this year.
Bankruptcies are piling up: Party City, Tuesday Morning, mattress manufacturer Serta Simmons and Independent Pet Partners, a pet store retailer, have filed for bankruptcy in recent weeks.
Bed Bath & Beyond, Rite Aid, Joann Fabric and other chains are also on bankruptcy watch, according to credit rating agencies. These companies have been struggling for a long time and are more vulnerable to economic conditions.
Brian Cornell, the CEO of Target, stated thatspiraling inflation made families put discretionary purchases on hold and focus most of their spending on necessities.
“The promotional environment went a little bit deeper, and we believe it’s going to go a little bit longer,” Under Armour
(UA) finance chief David Bergman said last month.
“The consumer electronics industry continues to feel the effects of the broader macro environment and its impact on consumers,” Best Buy finance chief Matt Bilunas said. Best Buy expects its comparable sales to go up or down this year.
Some discount chains may benefit from consumers seeking out bargains. TJX expects comparable sales to increase between 3% and 4% this year. Placer.ai says shopper visits to discount supermarkets have increased.
It’s a tentative sort of anxiety. Large store chains are prepared for a difficult year, since shoppers have begun cutting back, but how much further? Best Buy and Macy’s are feeling the impact of the slowdown.
Retailers have dropped a lot of financial reports in recent weeks. They see consumer spending as a key driver of the U.S. economy. Here’s what they say.
“We are seeing improvements in many items, commodity prices are getting cheaper, but we continue to provide some relief by using chicken, bacon, butter, steel, and other items as an example.” People spending their money where they feel they should be is something that bode well.
According to the research firm CFRA, retail and food companies were hurt by the unexpected twists of last year, including the war in Ukraine and soaring inflation. They want to keep low expectations for this year.
Walmart says shoppers are choosing wisely, spending their money on essentials rather than electronics, because they are sochoosy. We heard this from Kohl’s, Walmart, Target — and Best Buy, which forecast that 2023 will be the worst year yet for sales of computers and other consumer electronics.
Makeup, skincare and perfume counters are other places where shoppers are splurging. Target and Kohl’s (which has a deal with Sephora) both called out high spending on beauty products as one way they’re offsetting loss of interest in other departments.
Home Depot blamed a recent decline in shopping on the shoppers spending more on outings and trips. The retailer said people are still renovating and doing projects, but spending more carefully on big-ticket items like appliances, grills or patio furniture.
In that vein, Costco’s CFO Richard Galanti mentioned some tentative signs that people may be starting to spend more on things that they may need for activities, like camping and water-sports gear. He flagged the possibility of easing inflation.
The consumer making $80,000 a year is not trading up. The current economic climate is helping more consumers to shop at value retail.
Also, store brands are on the rise. Costco, Kroger, Walmart and Target said shoppers are increasingly picking up private brands rather than big national brands, like Kroger’s private label Home Chef. The products give companies higher profits.
Implications of the Pandemic Lockdowns for Consumer Spending on the Credit Card Industry and the Social Security Accountability of the U.S.
CFRA analyst Sundaram said the record-low unemployment rate and savings people built up during pandemic lockdowns have propped up a lot of the current spending.
He stated that consumers still have a willingness to spend, but their ability to spend has started to decline and now it is starting to decline at a more alarming rate.
