Major retailers in the United States are preparing for what they see as an impending recession, or at the very least, a period of slower sales. While the economy as a whole may not be in a recession, many stores across the country are feeling the pinch as inflation continues to rise and customers become increasingly price-conscious. Grocery giant Kroger’s CEO, Rodney McMullen, recently told CNBC’s “Squawk on the Street” that his customers are already behaving like they’re in a recession, downloading more coupons, cooking at home, and switching to lower-priced private label brands to save money.
As retailers gear up for tougher times ahead, they are revisiting their playbook for a recession and coming up with new strategies to drive sales. Target, for example, is increasing its inventory of food and household essentials to drive foot traffic, while Macy’s and Walmart are trying to win more sales from their most loyal customers. Best Buy and other retailers are focusing on new and exclusive products that may entice customers to spend more.
Although the travel and restaurant sectors are bouncing back, the “rolling recession” is starting to hit the retail sector, with many retailers predicting flat or declining sales this fiscal year. However, this is a sharp contrast to the early years of the pandemic, which saw a boom in retail spending.
Here’s a closer look at some of the retailers’ strategies:
Zeroing in on everyday items: Retailers are stocking up on everyday products like milk, paper towels, and soap, which customers frequently replenish, as shoppers think twice about discretionary purchases. Target, for example, has intentionally skewed its inventory mix toward food and household essentials, with its overall inventory declining by 3% year over year as of the end of the fiscal fourth quarter. However, its inventory of discretionary merchandise dropped by 13% during the same period. Walmart, the country’s largest grocer by revenue, has benefited from getting a larger chunk of sales from groceries, using lower-priced groceries to draw in shoppers across income levels, including more households with annual incomes of over $100,000. Yet, selling everyday items tends to be less profitable, and Walmart’s Chief Financial Officer, John David Rainey, acknowledged on an earnings call with investors in late February that “product mix shifts have negatively impacted our margins.”
Relying on loyal customers: As the going gets tougher, retailers are looking toward their loyal customers. Macy’s and Costco, for example, are among the retailers that want to squeeze out more sales from the tried and true. Some have even turned membership programs into money-makers. Walmart is trying to attract more customers to its subscription service, Walmart+, which costs $98 a year or $12.95 on a monthly basis. Best Buy has the Totaltech program, which costs $199.99 per year, and Lululemon has a free and a paid membership program, which debuted in the fall. Costco, a membership-based warehouse club, is seeing more customers upgrade to its top-tier of membership, Executive. At the end of its most recent quarter, Costco had 30.6 million paid Executive memberships, which account for about 45% of overall paid members and drive about 73% of worldwide sales. At Macy’s-owned Bloomingdale’s, members of its Loyallist program drove over 70% of same-store sales, including its own brands and third-party brands, and spent 7% more year over year, as of the end of Macy’s fourth quarter.
Chasing newness and value: As customers become more cautious, retailers are racing toward the next big thing, or at least the thing that only they have. Target, for example, anticipates modest or even declining sales in the year ahead, with same-store sales ranging from a low single-digit decline to a low single-digit