Ross Stores Taps Into Rising Consumer Desire for Budget-Friendly Nonessentials

As inflation exerts its influence on consumer purchasing decisions, off-price retailers are benefiting.

Among the off-price retailers, TJX Companies has recently reported benefiting from the patronage of Gen Z consumers, a demographic known for their budget-conscious shopping. Now, another retailer, Ross Stores, has emerged as a player in this evolving retail landscape.

Barbara Rentler, the CEO of Ross Stores, stated on Thursday (Aug. 17) that even though there has been a slowdown in inflation, customers with lower and moderate incomes are still dealing with increased expenses for essential items. She also highlighted that amidst these challenges, Ross products have maintained their appeal.

“Despite the recent moderation in inflation, our low-to-moderate income customer continues to face persistently higher costs on necessities. As such, we believe it is prudent to continue to plan the business cautiously. However, given our improved second quarter performance, we are raising our second half sales and earnings outlook. We are now planning comparable store sales for the third and fourth quarters of 2023 to be up 2% to 3% and up 1% to 2%, respectively. Based on these assumptions, same store sales for the 52 weeks ending Jan. 27, 2024 are forecast to be in the range of up 2% to 3%,” Rentler said.

In the 13 weeks leading up to July 29, Ross Stores made net income of $446 million, compared to $385 million in the same quarter last year. Sales for the second quarter of 2023 were $4.9 billion, up from $4.6 billion. Comparable store sales were up 5% in Q2 2023, compared to a 7% decline in Q2 2022.

Consumers Are Still Wary

As reported by PYMNTS this week, while the cost of essential items might be increasing more slowly compared to the previous year, consumers continue to exercise caution.

The Consumer Price Index data released by the Bureau of Labor Statistics on Aug. 10 indicated a mere 0.2% month-over-month price increase.

According to PYMNTS’ “Consumer Inflation Sentiment Report,” for July, within the group of consumers who hold even a moderate degree of worry about the economy, the primary source of concern is the rise in prices. This sentiment is supported by 83% of the surveyed individuals, a response rate that is nearly twice as large as that of the second most common concern, monthly financial commitments. Higher prices worried 91% of baby boomers and seniors, 73% of bridge millennials.

Read more: 82% of Consumers Worry About Prices Despite Inflation Relief

Consumers Want Discretionary Items, Just Cheaper

With off-price items continuing to strike a chord with consumers, TJX Companies, the parent company of brands such as T.J. Maxx, Marshalls, and HomeGoods, has experienced a surge in sales, attributed to consumers recognizing the value in TJX’s offerings.

“For us, value also means delivering desirable brands, fashionable merchandise and great quality to our shoppers,” TJX CEO Ernie Herrman said on Wednesday (Aug. 16) on a call with analysts. “We believe our value proposition is one of the best in all of retail.”

Herrman noted that a greater proportion of younger shoppers than initially expected has been observed. “We have been attracting a disproportionate number of new Gen Z and millennial shoppers, which is what we really look at in terms of future growth because that’s the future higher spend,” he said. “So, when we look out on our strategies for five to seven years, we purposely go after that.”

Read more: Gen Z Gives TJX a Sales Bump as TikTok Trend Goes Viral

Home Improvements as Discretionary Purchases

This week PYMNTS explored how rising interest rates are driving up borrowing costs, impacting potential homebuyers’ purchasing power and dampening their homeownership dreams. This has led cautious consumers to shift their outlook on the real estate market, resulting in reduced demand for new homes and a surge in interest in renovation projects.

The convergence of rising interest rates and inflation heralds a new era of nuanced home improvements. Homeowners now favor budget-conscious, manageable projects that can adapt to economic shifts, benefiting companies like Home Depot.

Home Depot announced its quarterly earnings on Tuesday (Aug. 15) surpassing predictions. The strong performance was propelled by increased spending by U.S. citizens on smaller home improvement tasks, despite decreases in more extensive remodeling and renovation outlays.

“While there was strength in categories associated with smaller projects, we did see continued pressure in certain big-ticket, discretionary categories,” said Ted Decker, chair and CEO. “We remain very positive on the medium- to long-term outlook for home improvement and our ability to grow share in a large and fragmented market.”