Retailers brace for cautious holiday shoppers

‘Tis the season of the cautious holiday shopper, apparently.

And it’s not looking as festive as retailers hoped, especially for mass merchants.

Both Target and Walmart reported third-quarter earnings this week and both expressed unease over shoppers who are delaying purchases and waiting for deals amid still-high food prices, soaring interest rates, looming credit card debt and the resumption of student loan payments.

Target CEO Brian Cornell set the scene, telling analysts: “This year, we’ve seen more and more consumers delaying their spending until the last moment. Guests who previously bought sweatshirts or denim in August or September are deciding to wait until the weather turns cold before making a purchase. This is a clear indication of the pressures they’re facing as they work to stretch their budgets until the next paycheck.”

Cornell said much of the pullback is due to “very sticky” food and beverage inflation, with prices on those goods up an average of 25% since the pandemic began.

It is a similar story at retail giant Walmart, where executives reported an unexpected sales softening toward the end of October.

“Sales have been somewhat uneven, and this gives us reason to think slightly more cautiously about the consumer versus 90 days ago,” CFO John David Rainey told analysts, according to a transcript from financial services firm AlphaSense.

But hope could be on the horizon for shoppers and, in turn, retailers.

Grocery inflation is down nearly 300 basis points over last year, but still remains up by a high-teens percentage on a two-year stacked basis, Rainey said. Beef prices remain high, but Walmart is seeing lower prices in dairy, eggs, chicken and seafood, President and CEO Doug McMillon noted.

“The pockets of disinflation we are seeing are helping, but we’d like to see more, faster, especially in the dry grocery and consumables categories,” McMillon said. “The dry grocery and consumables question feels like the key question. Will it come down? Will those categories come down? We hope they will.”

Target also said it is starting to see prices come down on food, beverage and other essentials, leading to “some improvement in unit velocity,” according to Chief Growth Officer Christina Hennington.

When prices have been so high for so long, though, and consumer economic pressure has been so sustained, it will likely take quite some time before shoppers relax.

And that could create a continued bumpy road ahead as retailers lap the higher prices of previous quarters combined with a potential spending slowdown by skittish consumers.

It’s why we’re seeing so many grocers try to outdo each other with low-cost Thanksgiving meals this season. Getting shoppers in the door, saving them a few bucks on turkey and mashed potatoes, will hopefully make them feel flush enough to spend that cash a few aisles over.

“As we enter the holiday season, we’re working hard to lower grocery prices to ease the pressure for consumers, giving them more capacity for general merchandise spend,” Rainey told analysts.

And that sentiment, of course, is at the top of every retailer’s holiday wish list.