Consumers Are Looking for Deals as Retail Sales Jump

Spending is up, and major retailers saw sales lift last quarter, but Target and others missed the mark.

November 18, 2022

ALEXANDRIA, Va.—U.S. retail sales were up 1.3% last month over September, as shoppers spent more money on essentials such as gas and food, reports the Wall Street Journal. However, spending on discretionary items was up, including cars, furniture and dining out.

According to the Journal, the increase in sales shows that consumers have the means to spend more amid high inflation because they built up savings during the pandemic thanks to government stimulus checks, less opportunity to spend and higher wages. The job market also remains strong.

Additionally, the holiday shopping season began early this year, as retailers have had excess inventory, while shoppers have shifted their habits. Retailers have responded with early deals.

Walmart saw an 8.2% increase in sales year over year during the third quarter, reports the New York Times, and revenue was up $153 billion year over year in the third quarter, which was more than expected. The retailer also increased it full-year forecast for revenue and profit and announced a $20 billion share buyback.

Transaction counts and the average amount a shopper spent per trip increased in the third quarter, suggesting that high inflation has not been a deterrent for Walmart customers.

Home Depot also saw increased sales in the last quarter, with CEO Ted Decker saying that “price sensitivity wasn’t as strong as we thought it would be” on an earnings call. Home Depot executives said that the demand for home renovations has increased as people choose to forgo moving due to rising mortgage rates and work on their current homes, which have already increased in value over the past two years.

However, Target reported its profit fell around 50% in its third quarter, and the company plans to slash $3 billion in total costs over the next three years. Executives cited lowered sales in October and November because its customers are being impacted by inflation, interest-rate hikes and economic uncertainty.

“Clearly it’s an environment where consumers have been stressed,” said Target Chief Executive Brian Cornell on a call with reporters. “We know they are spending more dollars on food and beverage and household essentials, and as they are shopping for discretionary categories they are looking for promotions.”

According to Target, its customers are not purchasing items until there is a deal, and they’re buying smaller pack sizes and giving priority to family needs.

“Broadly speaking, retailers could price products wherever they wanted to over the last two years and consumers would buy them,” Mike Graziano, a senior analyst of consumer products at RSM US, an audit, tax and consulting firm, told the New York Times. “Now consumers are looking for deals like they do over the holiday, and consumers are taking advantage of that, and October was a clear example of that.”

According to the National Retail Federation (NRF), an estimated 166.3 million people are planning to shop from Thanksgiving Day through Cyber Monday this year. This figure is almost 8 million more people than last year and is the highest estimate since NRF began tracking this data in 2017.

“While there is much speculation about inflation’s impact on consumer behavior, our data tells us that this Thanksgiving holiday weekend will see robust store traffic with a record number of shoppers taking advantage of value pricing,” NRF President and CEO Matthew Shay said. “We are optimistic that retail sales will remain strong in the weeks ahead, and retailers are ready to meet consumers however they want to shop with great products at prices they want to pay.”

Overall holiday sales could reach up to $960.4 billion, according to the NRF, and consumers plan to spend $832.84 on average on gifts and holiday items such as decorations and food.

However, recent research from Numerator suggests that inflation is impacting how consumers are shopping for the holidays, with 93% of consumers surveyed saying they will adjust their gift shopping to account for higher prices. The top adjustments will be seeking out additional promotions and sales (49% of shoppers), purchasing less expensive gifts (43%), purchasing fewer gifts (38%) and purchasing gifts for fewer people (22%).

Additionally, nearly 3 in 5 holiday shoppers (59%) say they’re worried about their ability to afford gifts this year, and two-thirds (66%) expect inflation to have a moderate or significant impact on their holiday gift shopping.