As U.S. consumers navigate an economy still rocked by high inflation, they are guided by tight wallets and cheaper goods, a trend that’s hitting department store chains like Macy’s harder than discount retailers like Target and T.J. Maxx.
On Wednesday, Macy’s, the largest department store chain in the United States, reported falling sales in the second quarter, while Target and T.J. Maxx found lower prices were luring consumers. But all three retailers are headed into the final months of the year marked by uncertainty over the upcoming U.S. presidential election, which has cast a shadow over the economy.
The discrepancy between struggling department stores and thriving budget retailers underscores a consumer trend: Shoppers are “increasingly careful and discerning,” despite cooling inflation, said Quincy Krosby, chief global strategist at LPL Financial.
Earnings reports from major retailers are one data point on Wall Street’s radar, as investors anticipate the minutes from the Federal Reserve’s July policy meeting, set to be released on Wednesday, which will offer insights into possible interest rate cuts.
Macy’s, which also owns Bloomingdale’s and Bluemercury, said overall comparable sales, a metric for stores open more than a year, fell 4 percent in the second quarter. The retailer added that it was expecting its net sales for the year to be down as much as 2.2 percent, to $22.4. billion. The company expects comparable sales also to be lower for the full year.
“The context that we are operating under is a consumer that’s really oriented on value,” Adrian Mitchell, Macy’s chief financial officer, said on a call with analysts.
In response, Macy’s has been bringing down prices on brands that were not selling well, and it put up clear signs that signaled value to customers when they walked in the store.
Penny-pinching is a challenge for department stores like Macy’s. Discount retailers, including Target, appear better positioned to reap the benefits of price-conscious consumers. In May, Target announced modest price cuts on 5,000 food products and household goods, which contributed to traffic growth, executives said.
Target said Wednesday that its comparable sales grew 2 percent in the three-month period ending Aug. 3, beating expectations. Discretionary spending picked up, too — particularly in its clothing business.
Consumers remain resilient, Brian Cornell, Target’s chief executive, said on a call with analysts. But they “continue to focus on value as they work hard to manage their household budgets,” he added.
Target said it expected that sales for the full year would be flat or increase 2 percent, but the company acknowledged that it would probably come in on the lower end.
Neil Saunders, managing director at retail consultancy GlobalData, said Target’s discounting and focus on value were well timed: Families are looking for low prices on back-to-school products.
“Target has a more favorable position than many in the middle market, if only because of its more value-oriented stance and its essentials offering which still drives footfall,” Mr. Saunders said in an emailed statement. “Target’s results will also come as a general relief for the retail economy and is another proof point that while consumers remain constrained and cautious, they are not in recession mode.”
TJX, the parent company of the off-price retailers T.J. Maxx and HomeGoods, also reported its quarterly earnings on Wednesday, saying its comparable sales rose 4 percent. The company raised its guidance on its pretax profit margin for the year.
Target and TJX have extended a trend of strong quarterly sales for retailers deemed as value-oriented, set in motion last week by Walmart. Walmart reported that sales at its U.S. stores rose just over 4 percent, to $115.3 billion, as its customers were attracted to lower prices and the ease of receiving their merchandise.
The retail reports reflect the broader economic picture that is taking shape: U.S. retail sales in July rose above expectations. But Americans are becoming less optimistic about their financial situation, even as they expect inflation to cool, according to a survey from the University of Michigan’s Survey of Consumers.
The backdrop is likely concerns about job security, Ms. Krosby said. New employment estimates released on Wednesday by the Labor Department showed that the U.S. economy added far fewer jobs in 2023 and early 2024 than previously reported, a sign that cracks in the labor market could be more severe.
Macy’s is in the early stages of a turnaround plan set in motion by its chief, Tony Spring, who wants to shutter 150 stores over the next three years. Comparable sales at 50 locations that represent the company’s future — based on geography, staffing and other factors — rose 0.8 percent.
In an interview after the company’s earnings were released, Mr. Spring returned to a sentiment that many executives running consumer brands have been conveying over the past few weeks: They are focused on controlling what they can as shoppers deal with various economic and political headwinds.
“We’re trying to react in real time, again, knowing that we’re not going to affect weather and the political situation or anything else,” Mr. Spring said. “So how do we make everything that we do more compelling?”