Inflation's Sting: US Consumers Are Cutting Back on Spending
Will you become a more savvy shopper?
Inflation changes consumer behavior. Lower-income households have been hit harder by inflation and are making basic choices as they juggle rent and other essentials. Even as more affluent households splurge, many are also “trading down,” meaning they’re shopping at discount stores or online to save on groceries and other staples.
Trading down remained prevalent
76% of consumers reported trading down—that is, changing the type or quantity of purchases for better value and pricing—in the third quarter, consistent with earlier data from Q2 of 2024.
Retail sales data shows a spending slowdown
As inflation grows, disposable income decreases, which pushes "real spending" lower. Lower-income consumers are most affected by this. Dollar General’s core, lower-income consumers are under financial pressure, which led to Dollar General's poor quarterly financial report.
🟡Dollar General missed Wall Street’s expectations on both revenue and profits in Q2 2024. According to the August 29 financial report, Dollar General's revenue only grew by 0.5%, and this growth came entirely from everyday consumables such as food. Dollar General's stock dropped by 32.15% on Thursday, marking the largest single-day drop in the company’s history.
Dollar General operates more than 20,000 stores across 48 states in the U.S. This company caters to more rural areas and lower-income customers.
The company said part of the issue is that lower-income consumers are struggling to afford necessities. Rising prices, declining employment levels, and increasing borrowing costs have negatively impacted the confidence of low-income consumers. As a result, many are either hesitant or unable to spend. Additionally, inventory losses, including theft, have also increased simultaneously.
However, the U.S.'s largest retailer, Walmart (including Sam’s Club), and the third-largest, Target, both delivered strong financial reports. Dollar General's core users, the low-income group, are typically the first to feel the effects of economic uncertainty. For now, the U.S. middle class still maintains consumption health, which is why these two retail giants’ financial reports remain strong. However, both companies recognize that consumer spending is losing momentum. They are now offering more discount promotions to attract more customers.
🔵Walmart's 2024 Q2 revenue grew nearly 5%, beating Wall Street’s expectations for sales and profits. Its shares climbed 6% in morning trading.
Walmart is trying to attract some shoppers looking for greater value amid high inflation, Walmart had 7,200 “rollbacks,” or short-term deals on items, in the quarter, including a 35% increase in the number of rollbacks on food.
🔴In Q2, Target earnings surged 43% to $1192 million profit, with revenue up 2.7% to $25.45 billion. The earnings surge was due to Target attracting shoppers with new merchandise and reduced prices. The retailer said they dropped prices on 5,000 everyday items over the summer.
The fact that major retailers are all offering discounts could be a sign that US consumer spending is slowing down. People are now shopping at discount stores or online to save on groceries and other staples. In the future, as inflation figures continue to fluctuate, market uncertainty, the upcoming US general election, and ongoing geopolitical conflicts may continuously test US consumers’ faith in the economy.
Created by Wendy