Doug McMillon, president and CEO of Walmart, said individuals are choosing bargains. Derek White—Getty Images for Operation HOPE, Inc.
Consumers are understandably confused by the current economic climate, and leaders of major companies appear to be equally confused about consumer trends.
Projections for U.S. spending for the rest of 2023 and into 2024 vary by industry experts.
While Bank of America CEO Brian Moynihan maintains that shoppers have remained relatively stable, Wells Fargo CEO Charlie Scharf goes a step further, saying that consumers are ” “It’s still very, very strong.” On the contrary, some experts, like Wharton professor Jeremy Siegel, predict a significant consumer pullback after the summer season.
Walmart, which offers both essential and discretionary items, says its barometer of U.S. shopping sentiment is a combination of all of the above. But even Walmart is wondering what the next 12 months will mean.
Walmart Chief Financial Officer John David Rainey said Wednesday at the Morgan Stanley Global Consumer and Retail Conference that consumer behavior in October was so bizarre that his boss “sat in the chair.” He said it was.
He continued that spending patterns in the last two weeks of October were particularly “puzzling” compared to previous months, but said he was by no means “alarmist”.
Unfortunately for Rainey, Wall Street may already be spooked. The company’s shares have plunged this month, falling 7% after plunging after the group’s third-quarter results.
In a conference call in mid-November, Rainey first hinted at changes in consumer behavior, saying, “Customers are demonstrating continued discretion to seek value within their household budgets.”
Rainey sought reassurance this week with a Reuters report that “unusual” shopper behavior and deflationary price pressures would not prompt Walmart, a $415 billion company, to reconsider its long-term plans. did.
Customers are becoming increasingly price sensitive
Customers may still be spending big, according to Walmart’s CEO, even though 2023’s Black Friday period broke records, with Americans spending $9.8 billion on goods. , individuals are becoming increasingly wary of price tags on everyday items.
On the same day as Rainey’s update, Walmart CEO Doug McMillon sat down with CNBC to discuss his shopping habits in more detail. “Generally speaking, customers are now very sensitive. They are prioritizing their orders and knowing that prices may be lower due to stock clearance just before or right after Christmas. So we expect that to happen.”
Wall Street giants have previously said the lower end of the income spectrum has seen the most softening. For example, Citigroup CEO Jane Fraser said earlier this year that “cracks” were starting to appear among consumers with lower incomes.
McMillon said that’s not the case with Walmart, explaining: We went through a period of inflation, but things are changing now. We’re starting to see deflation, and that’s good to see. But as price sensitivity increases, everyone is looking for value. ”
Some food prices are indeed starting to fall, according to the latest data from the U.S. Bureau of Labor Statistics. According to October data, prices for dairy products and non-alcoholic drinks, for example, fell, and gasoline prices also fell by 4.9%. Overall, this means that the change in the Consumer Price Index from September to October is exactly zero.
Amazon echoes Walmart’s observations
Walmart isn’t the only company observing. Amazon CEO Andy Jassy, whose team has observed similar trends from the top of the online tree, appears confident that consumers will continue to turn to Amazon for essentials. said.
“Consumers are still spending,” Jassy said in an interview with CNBC this week. “They’re careful about what they spend, and they’re looking for bargains and deals wherever they can. Wherever they can lower prices, they’re trying to do that.”
Despite declines in some categories of the consumer price index, inflation remains above the Fed’s 2% target. In October it was 3.2%. Still, consumers have remained resilient, Jassy said.
In fact, it would take a significant surge to stop people from buying essential goods. “I think people will buy certain retail products,” he noted. “A lot of things are going to have to go wrong before people stop investing in detergents, shampoos and soaps. If you look at our consumables business, the growth rate is very good.”