NEW ORLEANS - Americans across all income levels are cutting back on spending including on necessities as economic uncertainty grows. Several retailers across the United States have recently issued earnings reports that show declining sales.
Walmart and Dollar General, two of America’s discount retail giants, have observed that lower-income consumers are increasingly stretched, leading them to prioritize basic essentials and purchase smaller quantities. Dollar General specifically noted a trend of customers opting for cheaper items, reflecting a broader shift towards cost-saving measures.
During an earnings call, Dollar General CEO Todd Vasos talked about the financial challenges facing the company's core customers, noting that many shoppers are struggling due to ongoing inflation, with some having to sacrifice on necessities. He highlighted that more than 60% of households earning less than $35,000 annually have had to cut back on purchasing basic necessities due to inflation.
Vasos also observed that higher-income consumers are turning to dollar stores for savings, and that store closures by competitors like Party City and some drugstore chains have benefited Dollar General by providing opportunities for market share gains.
Big Lots, another American discount retailer, faced substantial financial difficulties leading to a Chapter 11 bankruptcy filing in Sept. 2024. The company initially entered into an agreement to sell its assets and operations to an affiliate of Nexus Capital Management during the Chapter 11 bankruptcy proceedings and the U.S. Bankruptcy Court for the District of Delaware had approved the sale in Nov. 2024, but by Dec. Big Lots announced that it did not anticipate closing the sale to Nexus and would begin going-out-of-business sales at its remaining stores. Subsequently, Big Lots reached an agreement with Gordon Brothers to transfer the operation of up to 400 stores and two distribution centers to Variety Wholesalers, which would retain the Big Lots name.
According to the Wall Street Journal, Lowe’s and Foot Locker have also reported a slow in demand. Other major retailers like Target and Kohl’s have also reported declining sales noting that higher-income shoppers are starting to turn to discount stores. Even Costco has noted a shift toward cheaper products.
Kohl’s CEO Ashley Buchanan noted that customers earning less than $100,000, alongside lower-income shoppers, are feeling financially strained.
According to Citi, apparel spending has decreased by 12% this quarter compared to the same period last year. Luxury in-store and online spending also saw a significant drop of 9.3% last month from a year earlier, following a 5.9% dip in Jan. Concurrently, major airlines such as Delta, JetBlue, American Airlines, and Southwest have revised their first-quarter sales forecasts downward, reflecting weakened demand.
The Bank of America Institute reports that across all income groups over the past year, wage growth has declined, and both checking and savings account balances have diminished, contributing to a more cautious consumer outlook. They report that while inflation and tariffs are likely contributing factors, the core issue is slowing wage growth and shrinking savings.
Strategies to Cope
In response to the downturn in consumer spending, retailers are implementing several strategies to adapt to changing consumer behaviors and economic challenges:
Focusing on Essential Goods: Retailers like Dollar General have observed that many shoppers are now prioritizing basic necessities over discretionary items. To meet this demand, Dollar General is emphasizing the availability of essential products to cater to budget-conscious consumers.
Implementing Pricing Strategies: To attract cost-sensitive customers, retailers are adopting various pricing strategies, such as penetration pricing, where prices are set lower to gain market share, and odd-even pricing, which uses psychological pricing cues to influence purchasing decisions (setting prices just below a round number to make them appear more attractive to consumers).
Enhancing Customer Experience: Some retailers are focusing on improving the in-store experience, delivering personalized services, curating targeted product assortments, and ensuring seamless integration between online and offline channels.
Investing in Technology: To reduce costs and improve customer engagement, retailers are increasingly incorporating technologies such as augmented reality (AR), robotics, and AI. Some retailers have developed AR applications that allow customers to visualize products in their homes, while others may use specific robotic functions for things like inventory management and even customer assistance, particularly as AI Agents and Voice-Interactive AI systems increasingly roll out.
Adjusting Store Formats: In response to changing shopping behaviors, retailers like CVS Health are experimenting with smaller store formats and expanding home delivery services to meet consumer demand for convenience and accessibility.
