As investors monitor store foot traffic on Black Friday, they are searching for retailers that can thrive in a mixed economic environment marked by high prices and constrained consumer budgets. Beyond retail giant Walmart (WMT.US), discount retailers like TJX Companies (TJX.US) and Ross Stores (ROST.US) are expected to draw bargain-seeking shoppers away from traditional department stores such as Macy's (M.US) and Kohl's (KSS.US). While premium brands like Ralph Lauren (RL.US) and Tapestry (TPR.US) may attract high-spending consumers, their strong performance is already reflected in their stock prices—up 60% and 69% year-to-date, respectively.
Despite the growing shift to online shopping—which has significantly boosted Amazon and Walmart in recent years—investors and analysts still rely on in-store traffic to gauge consumer sentiment and preferences. Against a backdrop of persistent inflation and a slowing labor market, investors anticipate tighter spending among middle- and lower-income households, while wealthier consumers benefiting from the 2025 stock market rally may offset some of the decline.
Kim Forrest, Chief Investment Officer at Bokeh Capital Partners, noted: "When economic disparities widen—some prosper while others struggle—but everyone keeps spending, the stakes rise for all retailers."
**Walmart and TJX Earn Praise, Some Retail Stocks Undervalued** Forrest observed "stressed" shoppers at Walmart ahead of Thanksgiving, with the retail giant adjusting prices to meet demand—offering 10-pound and 5-pound bags of potatoes and turkeys in various sizes. She highlighted Walmart’s "visually compelling displays" (such as Thanksgiving-themed home sections and decorated cribs) as superior to Target’s (TGT.US), which she said has "lost its merchandising magic."
This view aligns with recent earnings reports. Last week, Walmart posted better-than-expected Q3 FY2026 results and raised its full-year guidance for the second consecutive quarter, demonstrating resilience amid economic uncertainty. The company is attracting more price-sensitive shoppers and gaining digital market share. In contrast, Target, which caters to middle-income Americans, delivered mixed results, with same-store sales declining more than expected due to markdowns and weak demand in key categories.
Forrest emphasized: "Budget-conscious consumers seek maximum value and will choose stores that meet their needs over mediocre shopping experiences." She expects TJX—parent of TJMaxx and HomeGoods—to outperform Macy's and Kohl's. While Kohl’s surged 42.5% on Tuesday after forecasting narrower sales declines and profit growth next year, its same-store sales have fallen for 11 straight quarters.
David Swartz, Senior Retail Analyst at Morningstar, noted that investors have clearly favored Ross Stores and TJX over Macy's and Kohl's in recent years, as the latter face stiff competition from discounters and e-commerce giants like Amazon and Walmart. In the premium segment, Swartz sees Ralph Lauren, Ulta Beauty (ULTA.US), and Tapestry performing well this holiday season but warns of rising risks if valuations climb further. Meanwhile, Nike (NKE.US) and Lululemon (LULU.US) have underperformed but may rebound if conditions improve.
**Holiday Shopping Season Begins Amid Consumer Caution** The U.S. holiday shopping season officially kicks off this Friday, but consumers are grappling with economic concerns—cooling job markets, stagnant wages, high inflation, and looming tariff impacts. Black Friday will serve as a litmus test: Will U.S. shoppers defy economic headwinds, or will the consumer-driven economy show signs of fatigue?
Signs point to a more restrained holiday season. Market research firm Circana projects flat spending year-over-year but a 2.5% drop in unit sales—meaning consumers will pay more for fewer items. Marshal Cohen, Circana’s Chief Retail Advisor, stated: "This won’t be a frenzied holiday season. Gifts under the tree will be fewer."
The National Retail Federation expects a record 187 million shoppers this season—over half the U.S. population—but average planned spending has fallen 4% to $622, according to Deloitte. Accenture’s survey notes that any spending growth reflects higher prices, not confidence.
Retailers, which rely on November and December for 20% of annual sales, are competing for increasingly price-sensitive and anxious shoppers. While high earners (top 10% by income) remain willing to spend, they are more selective. Some consumers plan to use Black Friday deals for essentials rather than splurges. Meanwhile, tariffs may limit deep discounts, and staffing shortages could lead to longer lines in stores.
**K-Shaped Economy Deepens Disparities** The U.S. economy exhibits a stark K-shaped divide: Stocks and real estate boom, enriching asset holders, while wage earners face eroded purchasing power due to inflation. Analysts attribute this to tariffs, restrictive immigration policies, tech advancements, and Fed tightening.
Brian Coulton, Fitch Ratings’ Chief Economist, noted that resilient GDP and consumption amid a weakening labor market may stem from AI-driven capital spending, tighter labor supply, and stock market gains benefiting wealthy consumers. AI investments alone contributed 0.7 percentage points to GDP growth from Q4 2024 to Q2 2025.
Moody’s Chief Economist Mark Zandi warned that the economy, now driven by affluent households (whose spending accounts for 49.7% of national consumption—a record high), is increasingly vulnerable. If high earners pull back, recession risks surge.
The K-shaped trend is pushing even middle-class households (earning $41K–$124K) toward discount retailers. Nearly 28% of middle-income shoppers now frequent dollar stores, up from 20% four years ago. Adjusted for inflation, 2025 holiday spending is down 4.3% year-over-year.
Zandi cautioned: "The economy is entirely tethered to the fortunes of the wealthy. We must ask: Is this sustainable? If not, what does it mean for future growth?"
Comments