But just how careful varies based on their income, and that's showing up in the latest round of retail earnings reports.
Some chains, such as Walmart and Nordstrom, say that middle-income shoppers are still spending, though many are seeking out better value than they might otherwise. Sales at Nordstrom Rack , the department store's discount offshoot, were stronger than at the company's department stores — a sign that many weren't willing to pay full price for clothes but still had money to spend on looking good.
Other stores, such as Dollar General , are dealing with much more stressed lower-income shoppers. The dollar store chain saw its stock sink 32% on Thursday after it reported worse-than-expected second-quarter results and indicated that its core customers are economically worse off than six months ago.
Investors will get more insight into how low-income shoppers are faring next Wednesday when Dollar Tree, the US's other major dollar store operator, reports results. However, it points to a seemingly widening gap between middle- and lower-income Americans.
One way to explain the big disparity between retailers catering to shoppers who are still spending (though more selectively) and those who rely on lower-income consumers goes back to the lingering effects of the pandemic.
Starting in 2020, Americans from a variety of financial backgrounds saw their savings increase. This cushion came from rising wages and government stimulus payments to keep the economy humming through COVID.
Since then, though, many consumers have spent that money, especially with inflation pushing the cost of everything from food to airline tickets up. At the start of 2024, most Americans had an amount of savings similar to 2019 , right before the pandemic began.
But how much they have left varies.
Dollar General shoppers, who mostly come from households that make less than $35,000 a year, have long run out of those pandemic-era savings. CEO Todd Vasos said Thursday that many Dollar General shoppers are maxing out their credit cards and shifting their spending toward food and items that cost $1 each.
Higher-income consumers like the ones perusing the shelves of Nordstrom Rack and T.J. Maxx, meanwhile, still have disposable income to burn, even if they're trying to be thrifty with it, Brian Yarbrough, a senior analyst at Edward Jones, told Business Insider in an interview.
"While some of that savings has been spent down, there's still a lot of savings out there," he said.
Whether middle-class shoppers join their less affluent counterparts in trading down in the next several months will depend on a few factors. If the unemployment rate goes up, more shoppers could feel the need to trade down even more — something Dollar General CEO Vasos indicated could be a boon for his company.
And even if employment remains stable, middle-income shoppers could feel more of a pinch unless prices start coming down and wage growth continues, Yarbrough added. While inflation has slowed over the past several months, few items have actually gone down in price.
"At some point, does that start to impact a higher-middle income consumer?" he said. "That's the million-dollar question."
Do you work for Dollar General or another retailer and have a story idea to share? Reach out to this reporter at abitter@businessinsider.com
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