Macy’s is the latest retailer to highlight a big downshift in customer demand in recent months. The store just cut its annual profit and sales forecast for the year, after sales slowed in the first quarter.
In March, the store began slashing prices to help combat the lag, but shoppers didn’t take the bait. Macy’s CEO Jeff Gennette said on an earnings call Thursday that sales took a hit in March, worsened in April, and only slightly improved in May.
“The U.S. consumer, particularly at Macy’s, pulled back more than we anticipated,” Gennette said. Economic issues like inflation, particularly at the grocery store, have been driving the shift, he noted. But Gennette also pointed to cooler temperatures in early spring deterring customers from shelling out on items like spring clothing.
Weather is far from the only factor impacting spending, however. With the banking crisis booming and inflation putting a strain on budgets, shoppers are worried about where their money is going. Much of it is being reallocated to food and essential services. While at first that was only true for lower-income shoppers, now, middle- and upper-income shoppers are sticking to staples, as well.
Costco has also seen a downturn in profits this year. Economic uncertainty means shoppers aren’t buying items like home furnishings, jewelry, electronics, or toys. Shoppers are also buying more affordable meats like pork and chicken, as opposed to steaks and beef—a trend that is typical of recessions, finance chief Richard Galanti said last week.
Stores like Macy’s and Costco typically cater to middle- and high-income shoppers. While their sales have been slowing, higher-income shoppers seem to be heading to budget chains such as Walmart and Dollar General. Both are seeing growth for groceries and necessities. Still, those stores also saw a slowdown in nonessential items.
During an earnings call earlier this month, Walmart CFO John David Rainey said Walmart’s grocery business drove the company’s 3.5% shift in sales from general merchandise to grocery, health, and wellness products. He also spoke about the new clientele coming through the doors.
“As we have these new shoppers coming to us, as we have higher-income shoppers coming to shop for not only grocery but general merchandise, we want to retain those,” he said. “We want to retain them with better experiences, better product offerings, and we’re seeing that.”
Same-store sales at the Macy’s sank 8.7% last quarter. Macy’s stock was flat during early trading Thursday.
Recognize your company's culture of innovation by applying to this year's Best Workplaces for Innovators Awards before the extended deadline, April 12.
