The Fates of Target and Walmart Diverge as US Consumers Seek Bargains

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The Fates of Target and Walmart Diverge as US Consumers Seek Bargains

Bloomberg2022-11-17

(Bloomberg) -- American consumers, whose spending powered a rapid pandemic recovery in the US, are trading down to lower-cost brands and pulling back on discretionary items as inflation and recession ...

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If that deceleration continues, the closely watched yardstick of consumer behavior at one of the nation’s most important retailers could go negative for the first time in five years. Shoppers are hitting the brakes on discretionary purchases, the company said, and even toy sales have been disappointing in the holiday season.The contrast could hardly be starker with Walmart Inc., which gets more of its sales from groceries. The largest US retailer raised its outlook for the year after a surprisingly strong third quarter, saying higher-income shoppers were spurring market-share gains. In a play for more bargain hunters, its Sam’s Club stores started a price war with Costco Wholesale Corp. over the price of hot dog meals.The diverging outlooks at the two big retailers underscore the likelihood of a “consumer-discretionary recession,” as Cowen analyst Oliver Chen put it in a note to clients about Target’s results. October data released Wednesday by the US Commerce Department show a similar dynamic: Outlays on groceries, gas, eating out and personal care increased, while spending on hobby, electronics and general merchandise fell.This helps Walmart, which typically gets about 55% of its revenue from groceries. Target gets less than half.Higher RatesOfficials at the Federal Reserve have been aggressively raising interest rates in a bid to bring down stubbornly high inflation that’s weighing on consumers. Price increases in some categories have begun to cool, but central bankers still anticipate more rate hikes and are looking for a more broad-based decline before they change course.While Walmart’s results seem “like a good update for the US consumer, it’s probably bigger evidence of trade down to value players,” Wells Fargo & Co. analysts led by Edward Kelly said in a note. “Walmart is benefiting from company-specific trade down and these consumable traffic gains likely helped general merchandise.”Target fell 12% to $157.12 at 1:27 p.m. in New York, dragging down other retailers such as Best Buy Co. and Macy’s Inc. Walmart followed its Tuesday gain of 6.5%, which was the biggest since 2020, with a rise of less than 1% on Wednesday.The mighty American consumer still has some leeway for spending beyond essentials. Home Depot Inc. and Lowe’s Cos. both reported better-than-expected third-quarter earnings, noting robust demand for big projects like kitchen remodels and home expansions. Commerce Department data showed a 1.1% increase in building materials spending last month, though those figures aren’t adjusted for inflation.Strength in home improvement spending, however, also indicates that fewer Americans are purchasing homes as mortgage rates rise. Instead, they’re upgrading the properties that they already live in.“We still feel the backdrop of housing, the fundamental shortage of housing in this country and the aging of homes is incredibly strong for our space in the medium to long term,” Home Depot Chief Executive Officer Ted Decker said Tuesday.But the days of easy spending and stimulus-induced impulse purchases are waning. Even Walmart declined to make any glowing predictions about holiday demand, saying comparable-sales growth is likely to slow from the third quarter. It said its decision to cut the price of Sam’s Club’s hot-dog-and-soda combo almost 10% to $1.38 would help get more customers through the doors.‘Rapidly Softening Demand’Target, meanwhile, is seeing “rapidly softening demand,” CEO Brian Cornell said. Purchases of home items, sporting goods and in-home electronics have lagged. Many customers have been dipping into savings and borrowing more, but those options are starting to run out.“Consumers are feeling increased levels of stress, driven by persistently high inflation, rapidly rising interest rates, and an elevated sense of uncertainty about their economic prospects,” Cornell told analysts and investors on the retailer’s earnings call.The Minneapolis-based company, no slouch in groceries even if they make up less than half of sales, is trying to win more business with beauty products and food and beverage, where demand is stronger. And Target says it still won market share during the third quarter in unit terms, even though profit took a hit from markdowns aimed at paring its bloated inventory.The push to grab more grocery shoppers sets up a fight for customers that could potentially bring a measure of relief for US shoppers.Comparable sales at Walmart’s US grocery business recorded percentage growth in the mid-teens last quarter. Costco and Kroger Co., which recently agreed to buy competitor Albertsons Cos., will also be vying for the same customers.Consumers may still be interested in apparel, if it’s the right price. TJX Cos., owner of the T.J. Maxx and Marshalls off-price chains, reported better-than-forecast comparable sales on Wednesday.More insight is around the corner, with Macy’s, Kohl’s Corp. and Gap Inc. scheduled to report results Thursday. The apparel industry could be particularly strained given consumers’ growing focus on essentials and staples. Best Buy and Dollar Tree Inc. will follow with results on Nov. 22.","kind":null,"is_publish_news":true,"is_publish_highlight":true,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":9963177821,"gmtCreate":1668641898064,"gmtModify":1676538087897,"author":{"id":"3583099826231480","authorId":"3583099826231480","name":"ben t","avatar":"https://static.tigerbbs.com/ba1d5e01e85a7190dea17f7ca8234683","vip":1,"crmLevel":5,"crmLevelSwitch":0,"idStr":"3583099826231480","authorIdStr":"3583099826231480"},"htmlText":"Ok","listText":"Ok","text":"Ok","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":51,"repostSize":0,"link":"https://ttm.financial/post/9963177821","repostId":2284744786,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":105522831,"gmtCreate":1673392208612,"gmtModify":1673392221583,"authorId":3583099826231480,"author":{"id":3583099826231480,"idStr":"3583099826231480","authorId":3583099826231480,"name":"ben t","avatar":"https://static.tigerbbs.com/ba1d5e01e85a7190dea17f7ca8234683","vip":1,"crmLevel":5,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":9963177821,"type":1,"supId":0,"prevId":0,"content":"<u>gd</u>","text":"<u>gd</u>","html":"<u>gd</u>"},{"id":105489602,"gmtCreate":1673138623859,"gmtModify":1673138637132,"authorId":3583099826231480,"author":{"id":3583099826231480,"idStr":"3583099826231480","authorId":3583099826231480,"name":"ben t","avatar":"https://static.tigerbbs.com/ba1d5e01e85a7190dea17f7ca8234683","vip":1,"crmLevel":5,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":9963177821,"type":1,"supId":0,"prevId":0,"content":"<u>gd</u>","text":"<u>gd</u>","html":"<u>gd</u>"},{"id":105468392,"gmtCreate":1672962982697,"gmtModify":1672962992637,"authorId":3583099826231480,"author":{"id":3583099826231480,"idStr":"3583099826231480","authorId":3583099826231480,"name":"ben t","avatar":"https://static.tigerbbs.com/ba1d5e01e85a7190dea17f7ca8234683","vip":1,"crmLevel":5,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":9963177821,"type":1,"supId":0,"prevId":0,"content":"<u>ok</u>","text":"<u>ok</u>","html":"<u>ok</u>"},{"id":105455283,"gmtCreate":1672874078155,"gmtModify":1672874090768,"authorId":3583099826231480,"author":{"id":3583099826231480,"idStr":"3583099826231480","authorId":3583099826231480,"name":"ben t","avatar":"https://static.tigerbbs.com/ba1d5e01e85a7190dea17f7ca8234683","vip":1,"crmLevel":5,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":9963177821,"type":1,"supId":0,"prevId":0,"content":"<u>ok</u>","text":"<u>ok</u>","html":"<u>ok</u>"},{"id":105442454,"gmtCreate":1672788429826,"gmtModify":1672788442697,"authorId":3583099826231480,"author":{"id":3583099826231480,"idStr":"3583099826231480","authorId":3583099826231480,"name":"ben t","avatar":"https://static.tigerbbs.com/ba1d5e01e85a7190dea17f7ca8234683","vip":1,"crmLevel":5,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":9963177821,"type":1,"supId":0,"prevId":0,"content":"<u>ok</u>","text":"<u>ok</u>","html":"<u>ok</u>"}],"langContent":"EN"},{"id":9963172734,"gmtCreate":1668641662729,"gmtModify":1676538087719,"author":{"id":"4125148185432112","authorId":"4125148185432112","name":"AlanChong","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"hat":"https://static.tigerbbs.com/a3dee1aa3a3a3c1814833a4d3f8a5669","crmLevel":4,"crmLevelSwitch":0,"idStr":"4125148185432112","authorIdStr":"4125148185432112"},"htmlText":"Ok","listText":"Ok","text":"Ok","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9963172734","repostId":2284744786,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9963179848,"gmtCreate":1668641201384,"gmtModify":1676538087521,"author":{"id":"4088902048392220","authorId":"4088902048392220","name":"V.lye","avatar":"https://static.tigerbbs.com/7233306780623a2802ebfc0893c0cc52","vip":1,"crmLevel":6,"crmLevelSwitch":1,"idStr":"4088902048392220","authorIdStr":"4088902048392220"},"htmlText":"Ok","listText":"Ok","text":"Ok","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9963179848","repostId":2284744786,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"hasMoreComments":true,"newsSizeData":{"likeSize":85,"commentSize":3,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false}}