Retailers Wary of Squeeze on Shoppers Ahead of Key Holiday Season

Days ahead of the start of the holiday shopping season, several major retailers expressed caution about consumers during the busiest selling period of the year.

Walmart, the largest retailer in the United States, said on Thursday that sales rose about 5 percent in its latest quarter, which ran through late October, versus the previous year. Shoppers spent more on staples like groceries and less on discretionary items like video games.

The shift toward essentials has been an increasingly common pattern, as shoppers squeezed by inflation and rising interest rates shuffle their household budgets.

But John David Rainey, Walmart’s chief financial officer, said in an interview that consumers began to pull back in late October, even in food and other staples. “It makes us more cautious on the consumer as we look into the fourth quarter,” he said.

Activity picked up again this month, he said, as shoppers turned out for special promotions. “They’re leaning heavily into these promotional periods to buy these discretionary items that they maybe they have held off purchasing this year,” Mr. Rainey said, citing toys and clothes. That bodes well for Black Friday, he said, but less promising are “the shoulder periods before and after those events where we’re just seeing the consumer not as strong.”

On Wednesday, Target reported a roughly 5 percent decline in sales last quarter, which it said was the result of a decline in discretionary purchases like electronics offset somewhat by growth in beauty products and other more frequently bought items.

“Overall, consumers are still spending, but pressures like higher interest rates, the resumption of student loan repayments, increased credit card debt and reduced savings rates have left them with less discretionary income, forcing them to make trade-offs,” Brian C. Cornell, Target’s chief executive, said on a call with analysts. Two-thirds of toys in its stores will be priced at less than $25, the company said.

Target expects sales to continue falling in the final months of the year, subject to a “wide range” that reflects the uncertainty about holiday spending.

The U.S. Commerce Department reported that retail sales nationwide nudged down 0.1 percent in October from the previous month, the first drop since March. The decline, which is not adjusted for inflation, was driven by weakness in big-ticket categories like furniture and cars, which may be weighed down by the higher interest rates consumers face when buying on credit.

Home Depot said this week that “softer engagement” with pricey purchases like countertops and cabinets pushed down sales in its most recent quarter. The retailer boomed during the pandemic as people moved and took on home-improvement projects, but recently has experienced a “period of moderation,” according to Ted Decker, the company’s chief executive.

Macy’s also reported a decline in sales in its most recent quarter, partly because of higher delinquency rates on its credit cards. It is heading into the holiday season with much leaner inventories than in recent years.

Consumer demand has been unexpectedly resilient, despite the Federal Reserve’s efforts to rein in inflation by making it more expensive to borrow. The economy expanded at a 4.9 percent annual rate in the third quarter, far faster than the roughly 2 percent pace that officials at the Fed regard as a steady state of growth. Still, recent surveys measuring consumer confidence and opinions of the state of the economy have been gloomy, even as the job market remains healthy and wage growth outpaces inflation.

Holiday sales are expected to grow, but by less than in previous years. The National Retail Federation estimates that retail sales during November and December will increase 3 to 4 percent, down from a 5.3 percent rise that was recorded during last year’s holiday shopping season.

Some retailers see more straitened times as an opportunity. TJX, the parent company of off-price retailers like TJ Maxx and Marshalls, reported 6 percent growth in sales in its most recent quarter. At HomeGoods, its furniture division, sales rose 9 percent, a contrast to other retailers reporting declines in that category.

Ernie Herrman, TJX’s chief executive, said consumers come to the retailer’s outlets for more bang for their buck relative to higher-priced retailers. “Customers are telling us that their value perception of us is very strong, which is key,” he said.