Walmart and Target continue to grapple with inflation as consumers cut back on discretionary spending

Two of the largest big-box retailers reported their earnings last week, but the current macroeconomic environment leaves one in a slightly better position than the other.

Walmart’s sales rose almost 8% in Q1 on the back of its grocery and online sectors, while inflation continues to shepherd customers toward cheaper options. Target’s sales only grew 0.5% in Q1 and further diminished in March and April.

Both retailers acknowledged inflation is still greatly affecting consumer behavior. The difference is Walmart more heavily relies on grocery, whereas Target’s bread and butter is discretionary spending.

• While grocery accounts for just a fifth (21%) of Target’s yearly sales, that figure is almost 60% for Walmart.

Moving forward, Target wants to strike a balance between introducing new products at a value for consumers with keeping inventory on discretionary items in check. In Q1, stronger sales in beauty, food and beverage, and household essentials helped offset lower sales in home and  apparel.

Walmart US saw similar strength in grocery sales, particularly among higher-income shoppers, while apparel, electronics, and home sales suffered. But when it comes to dry groceries and consumables, Walmart still has major concerns.

• CEO Doug McMillon noted that prices in these categories remain high, whereas general merchandise prices have fallen.
• He said the company still needs to work with suppliers in these segments to bring prices down and free up cash for consumers’ discretionary spending.