The temples of mass consumption, such as Walmart, Target, Home Depot and Lowe’s in the United States, have become, since the health crisis, high places of psychological analysis. “Over the past two years, we have done our best to understand customer behavior” which, in a macroeconomic environment that has become ” out of control “have decided to regain power; “their behavior changes almost every two months. » These findings are those of Christina Hennington, the vice-president of Target, a chain of stores similar to Monoprix in France, but with a profile discount. She spoke yesterday, before the financial community, on the occasion by the publication by Target of its accounts for the first quarter.
This week, many big names in American distribution have made their copy at the end of March, a mandatory exercise for all companies listed on the stock exchange. This was an opportunity, with the publication on Tuesday of the latest retail sales figures in the United States, to gauge the holding of household consumption in the face of inflation at its highest for forty years, in a country where their spending account for two-thirds of GDP. While retail sales rose as expected in April, helped by inflation (the figures are expressed in value, not in volume), the financial results presented by companies have at best blurred, at worst tarnished, the general picture of consumption in the United States, the world’s largest economy.
If on Wall Street yesterday, Target plunged 25%, its biggest fall since the crash of 1987, it is because the sign clearly disappointed the expectations of the Stock Exchange in terms of margins and profits, one day after Walmart lowered its profitability forecast for this year. Target’s net income at the end of March was just over $1 billion, more than twice the performance of last year, when checks handed out by the Biden administration boosted consumption . Today, the environment is very different. There are no more checks, supply costs have exploded and inflation has not been fully passed on to selling prices, to avoid scaring away customers. Target store traffic is up in the first weeks of the second quarter, which reassures management about the relevance of its traffic, it believes that it has taken into account the passing desires of customers and the seasonality of their demand, “this is critically important to our long-term success,” tried to reassure CEO Brian Cornell. In the meantime, Target finds itself with a stock of TVs and household appliances – star products of confinement – that today no one wants.
Milk per half gallon rather than per gallon
With the reopening of the economy, the return of birthday parties for children and the possibility of traveling and going out again, customers have for example favored the purchase of toys, clothing and suitcases (sales of luggage increased by more than 50%). “A customer may tell us that they’re worried about inflation and rising gas prices, but also want to splurge on new shoes or cushions for their home. Another remains worried about the Covid, but still plans to resume his travels and is looking forward to his next summer outings like going to the matches of the Little League and barbecues with friends. Many customers are concerned about the general state of the economy. » Difficult to navigate, explains Christina Hennington. “We serve nearly 20 million customers on average each week”i.e. as many individual behaviors made more complex to decipher by “a rapidly changing macroeconomic environment. »
Target, known for its “budget friendly” positioning, has also said it won market share in its “food” division. Inflation, which is eating away at Americans’ purchasing power, seems to have made them more price-conscious, at least for the most modest households. At Walmart, the global giant of hypermarkets, where, on Tuesday, during the conference call presenting the quarterly accounts, the word “price” was spoken 35 times in less than an hour and the word “inflation” almost 30 times, we see that customers on the tightest budget have fallen back on the least expensive brands, often the store’s references for “cold cuts, breakfast meat, bacon”, listed boss John Furner, and buy milk by the half-gallon (about 2 liters) and no longer by the gallon. For many, shopping carts are less full. However, can we also observe at Walmart, where the“We serve a wide variety of customers […]there is a growth in high-value receipts” : new generation game consoles are being taken by storm, as well as, these days, with the hot weather, garden furniture and state-of-the-art barbecues.
READ ALSO : Walmart slashes margin forecast amid soaring costs
90% of Home Depot customers are homeowners
Transcripts of retail financial meetings are a gold mine for deciphering major consumer trends, at two speeds like never before, it seems for a long time in the United States, to the point that the bosses of Home Depot and Lowe’s, the biggest do-it-yourself players in the country, attribute their strong sales growth and good financial performance to the fact that their customer base is more affluent than in the rest of the large retailers. These are homeowners, fixed-rate borrowers who, now that the cost of credit is rising, prefer to do home improvement work rather than buy a new house.
The health crisis, which has put the house at the heart of life, has been beneficial to owners, just as it has been for those invested in the stock market, they have benefited from a wealth effect: the period of monetary largesse has had as a result of the scarcity of goods for sale compared to the very strong demand. In two years, according to a recent article in the New York Times, Americans who own their homes have generated a cumulative potential capital gain of more than 6,000 billion dollars. For Professor Benjamin Keys, a specialist in real estate at the Wharton School, never in the history of the United States have so many Americans earned so much money in such a short time. Richard McFail, chief financial officer and vice president of The Home Depot, explained on Tuesday that 90% of the retail customers of the chain were owners knowing, moreover, that “virtually all sales made to professionals are made in the name of an owner”. At Lowe’s also, the proportion of owners in the turnover is largely in the majority (around three quarters of sales). “Despite heightened macroeconomic uncertainty, long-term trends for the home improvement industry remain positiverejoices Marvin Ellison, the boss of Lowe’s. Homeowners’ balance sheets are very strong, and their confidence in buying big-ticket items is supported by the continued appreciation in home prices.”supported in particular by the arrival of Millennials on the real estate market, to aging stocks.
DIY stores, already in high demand during the crisis, are still in demand now, unlike, more generally, Amazon, Peloton or Zoom, fallen stars after confinement. At the end of April, when publishing its quarterly accounts, Amazon communicated disappointing sales forecasts, at the same time as the e-commerce giant reported the weakest growth rate (+7%) since the collapse. of the Internet bubble in 2001.