Walmart and Target reveal divergent perspectives

Walmart and Target released diverging outlooks for the final quarter of 2022 as the companies’ respective recent financial results show how rising inflation prompts consumers in the US to be more mindful and plan their purchases instead. of becoming abrupt buyers who will end up buying more than expected. .

The change in consumer behavior benefited the retail corporation Walmart, which generates much of its sales from groceries, and somewhat took sales away from the Target department store chain, which is yet another destination for additional purchases. .

The fact that consumers are becoming more careful with their spending can be attributed to inflation and concerns that the US economy is heading towards a recession.

The annual inflation rate in October slowed to 7.7%, compared with 8.2% in September, according to figures released in November. The latest figure is below consensus estimates of 8% and marked the lowest inflation figure since January 22.

However, nationwide consumer confidence fell for the month to a three-month low of 102.5 from a reading of 107.8 in September despite slowing inflation amid rising concerns about the economy. .

opposing points of view

In the third quarter, Walmart improved its financial outlook for the year after reporting 8.2% like-for-like sales growth and a sustained gain in grocery market share.

On the other hand, Target lowered its forecast for the fourth quarter following a 2.7% increase in comparable sales, attributable to a 1.4% increase in traffic growth and a 1.3% increase in sales. average ticket.

Since their respective results were released, Walmart is up ~10% while Target is down ~8%.

New York Stock Exchange:WMT 1D

The fact that Target missed its profit and revenue targets for the quarter paints a picture of how consumers are becoming more selective in what they spend.

Saunders said the company’s financial results show that people are now spending more on basic food and groceries and not as much on clothing and housewares, providing better margins for the company.

This is how behavior change becomes beneficial for Walmart. The company prides itself on offering products at “everyday low prices.” As Americans become more careful with their spending, this mantra becomes even more appealing.

Also, grocery items are always a necessity, regardless of the sky-high prices of the products. Since most of its sales come from groceries, this change could be very lucrative for Walmart.

Possible ray of light for the economy

US retail sales in October rebounded 1.3% after being flat in September. Year-over-year, sales grew 8.3%.

Better-than-expected growth in US retail sales in October suggests that consumer spending has picked up early in the fourth quarter of 2022. According to Reuters, this could be beneficial for the US economy. , especially amid fears of an impending recession.

Coupled with slowing inflation, strong retail sales for the month prompted cautious optimism that perhaps the US economy could avoid the expected downturn or at least experience only a mild downturn.

But Target’s warning of “dramatic changes” in consumer behavior that dragged down its third-quarter sales is still up in the air, raising concerns it could affect sales during the holidays.

The expectations for retail sales in November is an increase of 0.9%. The National Retail Federation forecasts that 2022 holiday sales will grow 6% to 8% this year. If realized, the expected figure would be less than the 13.5% increase recorded in the prior-year period, even at the upper end of the range. Even so, it will continue to be higher than the average growth of 4.9% of the last 10 years.

Leave a Reply

Your email address will not be published. Required fields are marked *