Macy’s Inc. M 3.33% said that its shoppers became more careful in the second quarter because they were still trying to fight inflation.
Things were so bad at Urban Outfitters Inc. URBN 2.42% that company leaders said they would change the company’s “traditionally alternative sensibility” to be friendlier.
It’s not just big box stores that cut their financial predictions. Even dollar store chains Dollar Tree Inc. DLTR 2.67% and Dollar General Corp. DG1.85% did it. Dollar General said most of its customers felt “worse off financially.”
Though the story was very different at Walmart Inc. WMT 1.18%, which is also a large cheap store chain.
During the company’s earnings call, CEO Doug McMillon said, “So far, we aren’t seeing a weaker consumer overall.”
The most recent quarter’s earnings are mostly in, and the retail industry is becoming more and more about the big box stores like Walmart and Costco Wholesale Corp. and everyone else.
“Most retailers… are struggling to show growth,” BNP Paribas analysts wrote in a recent note, naming Walmart, Costco, and Amazon.com Inc. AMZN -0.27% as the few stores that were doing well.
In an effort to ease the effects of inflation, some experts say that customers may be moving towards the biggest chains that can offer better deals. This trend could become more permanent as the big stores’ years of investments in technology and online shopping begin to pay off.
“It’s very likely that the changes in behaviour that are happening right now among Walmart customers are going to last much longer,” KeyBanc analyst Brad Thomas said in an interview. “We’ve seen this happen much more often than at other times in history when Walmart may have had a more temporary, cyclical benefit.”
Thomas said that Walmart was finally big enough for clients for its online shopping and delivery system to start working after years of growth. He talked about the good things about Walmart, like its new Bettergoods food line, its “chef-inspired” app, its membership program, its store remodels, its “elevated” clothing selection, and its “trend-forward” Bettergoods app.
Thomas said, “In a nutshell, Walmart is building Amazon 2.0 on top of its own network.”
Also, the expert said that Walmart’s recent investments would make it more appealing to wealthy customers, more of whom have been coming to the chain to find ways to save money. But he said those customers are more likely to change their minds, and there’s no promise they’ll stay.
Walmart has also relied a lot on sales of food, which people have to buy. The chain’s general merchandise sales got better in the second quarter. This includes things like clothes and electronics that aren’t groceries, where demand has dropped because of higher prices for necessities. The company said that they were still “relatively flat” on the whole.
Costco, on the other hand, recently raised membership fees for the first time in seven years. This was because demand stayed high during the pandemic and two years of price increases across the board. Oppenheimer analysts recently said that the chain’s sales in August showed that it could handle a less stable customer market. On September 26, Costco releases its quarterly report.
According to a research note from Oppenheimer, the company’s marketing efforts, such as offering a wide range of discounted gift cards, have helped non-foods category trends get better recently, even though consumer spending has been mixed.
“We expect strong top-line momentum to last for the rest of the year, thanks to the company’s exceptional merchandising skills and unique value proposition,” they said.
New results from Target Corp. TGT1.97%, a company that has been having a hard time because it sells too many things that people don’t need, showed signs of a recovery. During Target’s most recent quarter, same-store sales of clothes went up, and sales in all discretionary areas went up.
According to a recent note from UBS expert Michael Lasser, this shows that mass merchants are important places for people to shop during this time of stress. “The customer can take advantage of great deals, discover new and interesting products, and combine trips.” This trend doesn’t seem likely to end any time soon.
Even though hopes have been low further downstream, investors have still found things they like. At first, they liked the results from Gap Inc. (GAP 3.26%), Victoria’s Secret & Co. (VSCO 5.90%), and Nordstrom Inc. (JWN -0.44%), though Nordstrom executives are being cautious about the coming months. Five Below Inc. FIVE 4.36% changed its plans to open new shops, but the market didn’t seem to mind at the time. However, Oxford Industries Inc. OXM 1.26% shares fell after the company cut its outlook. Oxford Industries Inc. is the parent business of Tommy Bahama.
The growth for big stores like Walmart and Target could make people think more about the gap between them and smaller stores. Some analysts also say that Walmart’s growth has hurt competing dollar shops and smaller convenience stores.
Dollar stores will sometimes try to put themselves close to Walmart stores in the hopes of attracting shoppers who are only going to pick up a few things. But Thomas of KeyBanc said that Walmart’s online business has taken some shoppers away who would have gone to dollar shops instead. This is especially true for low-income customers.
“We think the dollar store business has become a little less necessary over the last few years compared to 20 years ago,” he said.
It may have been other things, said Nikki Baird, vice president of strategy and development at retail tech company Aptos, that set the winners apart from the losers during the quarter.
“To cater to back-to-school shoppers, Winners became more aggressive with sales and discounts,” she said via email. “They worked to make it seem like there were deals, even if they weren’t discounting as much.”
Small changes, like putting more emphasis on back-to-school things than clothes and separating aisles and shelves so that families could shop together, also helped, she said.
Now, both buyers and Wall Street will focus on the busy holiday shopping season. Black Friday used to be the official start of this season, but now it starts in early fall. As people look for deals more aggressively this year, discount clothes stores like Temu and Shein, as well as the social media site Tiktok, are likely to play a bigger role.
At least one expert report says TikTok’s first attempt to cash in on the summer shopping frenzy may have failed. But when the holiday shopping season starts, some experts think the platform will be a bigger problem for both small and large stores with more money.
Caila Schwartz, head of strategy and consumer insights at Salesforce, said in an email that TikTok is putting a lot of money into its shop features. For example, the company is changing its affiliate marketing program to get more users to be shopping influencers.
She said there were signs that that plan was working. Schwartz says that since April, the number of people who said they bought something on TikTok has gone up by 24%.
