As consumers look to balance their desire to treat themselves with ongoing economic concerns, Target is seeing shoppers’ shift to discretionary spending on experiences negatively impact their budgets for nonessential retail products.
On a call with analysts Wednesday (May 22) discussing the retailer’s first-quarter 2024 earnings results, Target Chairman and CEO Brian Cornell said shoppers are continuing to “look for ways they can stretch their budgets” amid inflation, often prioritizing springing for leisure activities above retail goods.
“Consumers are remixing their spending back into services and entertainment outside of their homes after curtailing those activities during the pandemic,” Cornell said. “This normalization, combined with the cumulative impact of higher prices on consumer budgets, is resulting in continued soft trends in discretionary categories, most notably in home and hardlines.”
Most consumers have cut back. The February/March installment of the PYMNTS Intelligence “New Reality Check: The Paycheck-to-Paycheck Report” series drew from a survey of more than 4,200 U.S. consumers. It revealed that 60% of shoppers have cut down on nonessential retail purchases. Plus, half have switched to less expensive merchants.
The shift to spending on experiences has been noted by everyone from Mall of America to Groupon to Mattel.
To keep these cost-conscious consumers spending, Target has been lowering prices. The retailer announced Monday (May 20) that it plans to lower prices on roughly 5,000 “frequently shopped items,” including milk, meat, bread, produce, peanut butter, coffee, diapers, paper towels and pet food.
Notably, however, consumers are getting back to splurging on clothing. Cornell highlighted a 4-percentage-point rise in the apparel business’s performance relative to the prior quarter, although it dipped slightly year over year, contributing to “optimism that we could see a better balance of spending between discretionary and frequency categories” going forward.
To that point, when consumers want to treat themselves to new products, they typically buy fashion items. “The Nonessential Spending Deep Dive Edition” of The Paycheck-to-Paycheck Report series revealed that among the 70% of retail shoppers who buy “nice-to-have” items at least sometimes, the most common such purchase is clothing.
Overall, in the quarter, Target saw a 3.7% year-over-year drop in comparable sales, although eCommerce sales were on the rise, with digital comparable sales up 1.4% and sales through its same-day channels rising 9%, as “Drive Up” curbside pickup increased 13%.
“This builds on the explosive growth of Drive Up that occurred during the pandemic, which was followed by double-digit increases in both 2022 and 2023,” Cornell said during the call. “All together and more than $2 billion in Q1, Drive Up sales were more than 30 times larger than we saw in the first quarter of 2019.”
A share of U.S. shoppers prefers to buy items in this way, as highlighted in the PYMNTS Intelligence study “2024 Global Digital Shopping Index: U.S. Edition,” created in collaboration with Visa Acceptance Solutions. The report, which drew from a survey of more than 2,400 U.S. consumers, found that 11.3% prefer to make purchases online for on-site pickup. Plus, a 2022 PYMNTS Intelligence report noted that 41% of consumers reported purchasing groceries online for curbside pickup, making it the most popular eGrocery channel.
For all PYMNTS retail coverage, subscribe to the daily Retail Newsletter.