Consumers want (or need) value

Stubborn inflation, a softening job market and higher borrowing costs are impacting consumer spending behavior. But in their recent second quarter conference calls with analysts, three chief executive officers attested to the fact that not all consumers — or all retailers — are affected to the same degree.

Walmart president and chief executive officer Doug McMillon reported that while consumers remain resilient, there is a growing emphasis on value across all income levels.

"So far, we aren't experiencing a weaker consumer overall," McMillon said. "Customers from all income levels are looking for value, and we have it." He added that Walmart has lowered prices and implemented more than 7,200 rollbacks in an effort to meet the demand for affordable options in a challenging economic environment.

Comparable-store sales in the second quarter were up 4.2% for the Walmart U.S. business, and 5.2% (excluding fuel) for Sam's Club.

Target chair and CEO Brian Cornell said inflation has forced many consumers to delay making purchases, but they are looking for value when they do shop.

"Consumers have shown remarkable resilience in the face of multiple challenges," Cornell said. "Our team continues to focus on providing unbeatable value for our guests."

Cornell said Target's approach includes price reductions on frequently purchased items, loyalty rewards through Target Circle, and a focus on convenience, all designed to enhance value for shoppers navigating tighter budgets.

Target reported that its comparable sales grew 2% in the second quarter.

Dollar General CEO Todd Vasos painted a more sobering picture of the economy’s impact on low-income households, which comprise a significant portion of the discount retailer’s customer base. "The majority of [our customers] state that they feel worse off financially than they were six months ago," Vasos said. As a result, Dollar General has seen softer-than-anticipated sales, with customers cutting back on basic necessities and turning to credit cards, often maxing them out, to cover essential expenses. Dollar General said sales increased 4.2% to $10.2 billion in its fiscal second quarter, but contributions from new stores primarily drove the increase. Same-store sales rose just 0.5%, and an increase in customer traffic was partially offset by a decline in average transaction amount.

These differing perspectives from retail leaders underscore the varied impacts economic conditions have on consumer spending. Middle- and higher-income shoppers continue to seek value and are adjusting their spending habits, but lower-income consumers are facing more acute financial pressures.

A new study from Coresight Research shows how different retailers attract and rely on different core customers. The report — “Who Shops Where? 2024 Shopper Demographics” — notes that, for nonfood shopping, dollar stores appeal to a lower average-income consumer than any other type of retailer, and they are the only retailers to appeal to a more rural than urban shopper base.

Walmart, Dollar General and Dollar Tree/Family Dollar are more appealing to lower-income consumers for both food and nonfood shopping, while Amazon, Target and Costco appeal to high-income consumers.

The Coresight study also found that “when it comes to food, Walmart outperforms all other retailers in every income bracket in terms of shopper penetration … Walmart appeals to customers from a wide range of backgrounds, which makes it relevant across all income categories.”

The upshot of all this is that customers matter to retailers, and value matters to customers.