US shoppers tighten budgets but still splurge on treats and luxury
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Walmart's disappointing sales and Home Depot's strength among budget-conscious do-it-yourselfers indicate middle-class American consumers are growing more tight-fisted, even as wealthier shoppers keep supporting luxury brands like Ralph Lauren. Earnings reports from supermarkets, home improvement stores, restaurants and luxury brands show consumers directing most spending toward essentials while still making room for affordable treats and occasional splurges. The trend is expected to carry into the key holiday shopping season.
Key Facts
- Walmart cut prices on 11,000 items in the three months through July but still posted its slowest same-store sales growth in six years.
- US retail sales in July logged their first decline in nine months.
- Luxury and premium brands including Ralph Lauren, Tapestry, Estee Lauder and Birkenstock reported strong results on demand for items priced well above $100.
- McDonald's discounted meal options failed to draw customers, while Yum Brands stores such as Taco Bell, KFC and Pizza Hut responded more strongly to fresh menu items.
- Walmart CFO John David Rainey said consumers are making trade-offs when fuel prices increase above $4.
Consumer Spending Shift
Walmart's average basket size weakened despite steady traffic, signaling tighter household budgets. Lower-income consumers are stretching budgets at Taco Bell and Ross Stores, pairing value meals and discount apparel with essential purchases. Aggregate spending has not collapsed, but households are becoming much more deliberate about where their money goes, said Lale Akoner, global market strategist at eToro. Walmart, TJ Maxx owner TJX and Home Depot all warned this week that shoppers remain selective.
Retailer Strategies
Retailers will probably rely on a mix of discounts, new merchandise and higher-end brands to keep customers coming during the holiday season. Price cuts alone may no longer be enough to compel a reticent shopper, as evidenced by McDonald's experience with discounted meal options. Selectivity is visible in snacks and impulse, where the shopper will still pay up for the one item they came in wanting and skip the second one, said Joel Goldstein, president at Mr. Checkout Distributors.
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US shoppers tighten budgets but still splurge on treats and luxury
