As American consumers are gearing up for the holiday season, their budgets include holiday meal preparations, planning for Black Friday deals, and shopping for Christmas lists. America’s large-scale retail chains like Walmart and Target released their fourth quarter outlooks, revealing competing rivalries and Target’s consumer base shrinking considerably.
Walmart’s retail sales grew 5.3% last quarter, and its profits increased 8.2%.
Unsurprisingly, the company expects a strong holiday shopping season. Target’s recent financial outlook isn’t so rosy. On November 20th, Target announced a decrease in its profit forecast, with only a small sales increase of 0.3%, and a stock plunge of 22%.
Upper-income households were the primary drivers of Walmart’s gain in market shares last quarter, with households making over $100,000 a year accounting for 75% of Walmart’s gains. Toward the end of November, Walmart announced that shares of the company had jumped over 3%. Over the past two months, Walmart’s shares have been consistently reaching new highs. In years past, the predominant demographic of Walmart’s consumer base has been low- and middle-income shoppers but, recently, Walmart has focused its expansion to include consumers making over $100,000 a year.
Especially around the holidays, consumers making more than $100,000 a year have historically shopped at Amazon which relies primarily on middle- to upper-class shoppers. Walmart’s appeal to that demographic has increased as it has built a rival online shopping experience to Amazon. Thousands of Walmart storefronts across the country have added buying online options, and in-store pickup availability, along with same-day delivery programs. This component of Walmart’s strategic outlook resulted in its online sales growing over 22% last quarter.
Discretionary spending is where middle- to upper-income shoppers have more flexibility in their budgets, and Walmart has sought to grow its discretionary assortment of goods to rival that of Target. Historically, Target has been America’s choice of storefront for home decor, electronics, and nonessential clothing. Target’s CEO Brian Cornell explained its recent 22% market share plunge, “Consumers tell us their budgets remain stretched and they’re shopping carefully as they work to overcome the cumulative impact of multiple years of price inflation.”
Over half of Target’s goods inventory is categorized as discretionary, so its storefronts are more susceptible than Walmart to swings in consumer spending. An analyst from Telsey Advisory Group stated, “Target may be losing share among its middle- to upper-income consumers to retailers like Amazon, Costco and Walmart.” However, Walmart’s strategic outlook to draw higher-income shoppers—by prioritizing a larger grocery business, driving down prices, and sharpening its inventory of clothing, electronics, and home furnishings—has been directing more middle- to upper-income shoppers to its storefront. Compared to Target’s grocery sales, Walmart derives about half of its sales from groceries while Target trails behind.
Even with inflation rates lowering in recent months, consumers at all income levels want lower prices and better value for their money, even more so with the holidays approaching. Americans have experienced multiple years of high prices and inflation rates, and Walmart’s strategic outlook appeals to consumers at all income levels. “As we grow our (online) assortment, we’re able to appeal to more people and appeal to higher income levels,” Walmart’s CEO Dough McMillon explained. “Those that have more discretionary income and want to save time are liking what we’re doing with both pickup and delivery.”
Americans, under the effects of their wages not stretching as far as they did in years past, are approaching the holiday season with tighter budgets and less room for discretionary spending. Despite the inflation rate decreasing from its 40-year highs in 2022, price levels have not yet returned to their pre-2021 levels.
IWF’s Center for Economic Opportunity Director, Patrice Onwuka, explains,
The American Farm Bureau calculated that the traditional Thanksgiving dinner, a classic feast for 10, will cost $58.08, 19% higher than five years ago, though down 5% from last year. As we see, Thanksgiving costs have largely been consistent over decades until starting to rise in 2021 and jumping in 2022 and 2023.
High inflation rates have long-lasting effects on the American economy. Despite relative upward trends in the economy since September, Americans are still making conscious choices to stretch their spending and shop at different storefronts. With President-elect Donald Trump promising to bring down costs through deregulation and wanting Americans to keep more of their paychecks, we’re hopeful that pre-2021 price levels could return in the near future.