Even Discount Retail CEOs Say Shoppers Are Pulling Back

Amid inflation, shoppers are actively seeking out affordable options. This trend has prompted consumers to search for merchants whose prices are in line with their budget. This has proven advantageous for retailers like Ross Stores, which strive to offer the “best branded bargains possible at the best possible value.”

During an earnings call on Thursday (May 18), the retailer announced that its first-quarter sales met expectations. However, Chief Executive Officer Barbara Rentler highlighted the existing uncertainty in the macroeconomic and geopolitical landscapes. Rentler also pointed out that prolonged inflationary pressures were negatively impacting the discretionary spending patterns of their low- to moderate-income customers.

But even so, Rentler noted that customers were actively seeking even more enticing bargains, and inflation has prompted them to reduce discretionary spending in certain categories.

Ross Stores revised its yearly profit forecast upwards following positive quarterly results. This boost can be attributed to cost-conscious customers shopping at the off-price retailer, as well as a decline in freight expenses.

Ross Stores announced its financial results for the 13-week period ending on April 29, 2023. During this period, the company achieved earnings per share of $1.09, with net earnings totaling $371 million. In comparison, the corresponding period in the previous year saw earnings per share of $0.97 and net income of $338 million.

Additionally, Ross Stores reported sales of $4.5 billion for the first quarter of 2023, an increase from $4.3 billion in the same period the previous year. Comparable store sales grew 1%.

Wallet-Stricken Consumer

Based on a report by PYMNTS, “Consumer Inflation Sentiment: The False Appeal of Deal-Chasing Consumers,” despite a slight moderation in inflation since its peak in July, 67% of retail customers anticipate significant price hikes in the next 12 months. Furthermore, the majority of customers do not expect a substantial improvement in the situation until late next year.

That said, it was revealed that consumers find it relatively easier to make trade-downs in discretionary retail items compared to similar adjustments in food purchases. According to the findings, “Consumers are 21% more inclined to reduce spending on retail products rather than on groceries.”

A significant 69% of survey respondents stated that they have decreased their nonessential spending on retail items. Additionally, 41% of retail shoppers reported that this change in spending habits has had the most significant impact, while 60% have switched to more affordable retailers. Furthermore, 35% of consumers have compromised on product quality by opting for cheaper, lower-quality goods.

The impact of cutbacks is evident across various categories, with 57% of shoppers decreasing their clothing purchases. Clothing is the retail category most prone to budget reductions. Additionally, 40% of consumers have transitioned to more affordable clothing retailers, while 26% have opted to purchase lower-quality clothing items.

Read more: 69% of Consumers Lower Retail Spend as 36% of Grocery Shoppers Buy Cheaper Brands

A Similar Demand in T.J. Maxx

While T.J. Maxx also reported a revenue shortfall in the most recent quarter, the retailer maintains a positive outlook regarding their core customer base.

“We continue to attract an outside number of younger customers to our stores, including many Gen Z and millennial shoppers, which we believe bodes well for the future,” said Ernie Herrman, president, chief executive officer and director of TJX Companies, during the company’s Q1 2023 earnings call on Wednesday (May 17).

The retailer has decided to expand its global store network by planning to open more than 1,400 new stores in the foreseeable future.

See also: T.J. Maxx Thrives as Bed Bath & Beyond Exits and Gen Z, Millennial Shoppers Drive Growth

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