As economists continue to seek clarity on how Americans are faring after the federal government shutdown paused data collection, the country’s largest retailers offered a window this week into the consumer mood in the lead-up to the most crucial spending season of the year.
Target, Walmart, Home Depot, Lowe’s and TJX — the parent company of TJ Maxx, Marshalls and HomeGoods — all described a cautious consumer, with tariffs, political tensions, still-high interest rates, an uncertain job market and the rising cost of essentials bogging down their outlook on the economy. But they continue to spend as the holiday season approaches — stretching their budget to afford groceries and essentials and willing to splurge if the deal is right and the product is new and on-trend.
Analysts also had a caveat: The future could get murkier after the holidays as more tariff-induced price increases will likely be passed on to consumers.
Consumers are “stable on the necessities but hesitant on big spending,” said Bryan Hayes, an analyst at Zacks Investment Research. “This cautionary theme of spending will certainly linger into early next year and likely midway through.”
To get by, Americans across the income spectrum are putting off big-ticket purchases and scaling back on nonessentials such as apparel, countertop appliances and home decor. Even Walmart noted some “moderation in spending in the low-income cohort,” chief financial officer John David Rainey said in an earnings call Thursday. The retail giant raised its full-year guidance on net sales, projecting an increase of 4.8 to 5.1 percent versus the previous forecast of 3.75 to 4.75 percent.
Shoppers are also decamping from chains like Target for more affordable stores like Walmart, TJ Maxx and Costco, said Brian Mulberry, a client portfolio manager at Zacks Investment Management. “They’re wanting their dollar to go farther,” he said.
Target, which has long attracted middle- and upper-income shoppers to its discretionary aisles, has struggled for years to dig itself out of a hole. The company has tried to lure back customers by lowering prices on thousands of food and essentials items. But analysts point to unorganized stores, inventory issues, lackluster assortment and culture-war boycotts as setbacks for the Minneapolis-based chain that have compounded its disadvantages on price. Same-store sales in its latest quarter ending Nov. 1 fell 2.7 percent, steeper than the preceding quarter’s 1.9 percent decline. The company lowered its full-year earnings per share to between $7 and $8, down from $7 to $9.
Home Depot, which is known to attract homeowners and wealthier consumers, noted that customers are now more hesitant to spend on expensive renovations and big-ticket purchases even though some are willing to trade up for new, innovative products. The company missed Wall Street’s expectations for the third quarter in a row and lowered its full-year earnings outlook on Wednesday.
Meanwhile, customers who shop at Lowe’s are taking on smaller, less expensive projects, said Neil Saunders, a managing director at retail analytics firm GlobalData. Despite the company beating Wall Street’s expectations this quarter, chief executive Marvin Ellison said Lowe’s is revising its full-year comparable sales to be flat over last year, describing consumers as “anxious.”
“Affordability and uncertainty in the broader economy continue to weigh on consumer confidence, particularly when it comes to larger discretionary purchases as borrowing costs have been elevated for longer than originally anticipated,” Ellison said in an earnings call Wednesday.
Tariff pressures ahead
The shift is also showing up in earnings for consumer goods companies. Tyson Foods, which released its quarterly results earlier this month, has seen customers move some of their nonfood dollars to food categories, while Clorox said shoppers are reaching for smaller sizes of cleaning supplies to save a few dollars. Kraft Heinz noted lower-income households are leading sales of single-serve bottles of Capri Sun “given its accessible entry price point,” chief executive Carlos Abrams-Rivera said in its earnings call in late October.
At the same time, the gulf continues to grow between higher- and lower-earning consumers, with the latter feeling the strain of waning wage growth, a slowing job market and rising housing and electricity costs. The bifurcation means retailers have to fight for those higher-income shoppers, Mulberry said.
Like Walmart, TJX is attracting more consumers across income demographics, its chief executive Ernie Hermann said in an earnings call Wednesday. The company, which raised its expectations for comparable sales growth for the year from 3.4 to 4 percent compared to 2024, has improved its home goods assortment to better compete with Target, Mulberry said. Shoppers are increasingly turning to TJ Maxx, HomeGoods and Marshalls to buy gifts, attracted by the constant influx of new and unique products that are well-priced.
Walmart’s affordable groceries have also helped entice higher earners. The company has temporarily cut prices on 7,400 items, with more than half in grocery. Its decor and clothing aisles are also popular among the cohort. Apparel sales grew 5 percent every month in its latest quarter, John Furner, the head of Walmart U.S. who will take over as Walmart CEO in February, said in the call.
Meanwhile, tariff-induced price increases, while slow to hit shelves, have set in over the past three months and are already weighing on shoppers, analysts said. Both home improvement chains and big box retailers have acknowledged price hikes in select categories as tariffs drive up the cost of appliances, toys, electronics, seasonal decor and apparel.
Home Depot — which saw positive sales growth in several categories, including kitchen, bath, storage, hardware and appliances — cited tariffs as one reason for its “modest price increases,” William Bastek, the executive vice president of merchandising, said in an earnings call Wednesday.
Walmart, which posted a strong quarter in which comparable sales both in-store and online grew 4.5 percent, is trying to calibrate its pricing strategy. Rainey noted in the earnings call that the average price of products in the toy, electronics and seasonal aisles has increased “in the high single digits,” but that has been offset in other areas of the store, which has “minimized the impact on consumers.”
Despite the uncertainty, retail executives and analysts agree that Americans will push through the holiday season, in part because of a solid back-to-school spending, which is often seen as a bellwether for Christmas shopping.
The National Retail Federation projects holiday spending will surpass a record $1 trillion in November and December, an increase between 3.7 and 4.2 percent over the same period last year without adjusting for inflation. That’s slower than last year’s 4.3 percent growth last year, but in line with pre-pandemic levels.
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