Major US Retailers Warn: Lower-Income Consumers Are In Trouble

President Biden and his top advisers have been adamant that the consumer is exceptionally strong this summer despite the economy slumping into a technical recession. Well, maybe in aggregate, the consumer appears healthy, but numerous retailers pointed out that less-affluent ones are tapped out. 

Earlier this summer, we saw the first signs of consumer cracking as people maxed out their credit cards and depleted savings amid 16 months of tumbling real wages due to the highest inflation in forty years. 

Companies from McDonald’s Corp. to Costco Wholesale Corporation to Burlington Stores, Inc. to Nordstrom, Inc. to Macy’s to Advance Auto Parts, Inc. to AT&T Inc. to even Dollar Tree, Inc. have all echoed a very alarming message that low-tier consumers are scaling back purchases as inflation bites. 

In July, McDonald’s offered a grim warning about the consumer’s state: Customers traded down for less expensive menu items. Lower-tier customers ditched combo meals for value offerings. 

Also, in July, Costco CEO Craig Jelinek said, overall, “the consumer isn’t doing bad,” but also mentioned, “a lot of people, right now, they’re in a recession because they’re just trying to survive by just buying gas and making house and rent payments.” 

Sounds confusing, right? But it’s not. With some clarification, Jelinek said wealthier households still have “discretionary income to buy goods,” which means the lower tier consumers are perhaps tapped out. 

Clothing retailer Burlington Stores this week offered even more insight into the state of the consumer. Michael O’Sullivan, the CEO, stated:

“We believe that the external factors – economic pressure on lower-to-moderate income shoppers, and very high levels of promotional activity – will continue well into the second half of the year. Accordingly, we are taking down our full-year sales and earnings outlook.”

Another retailer Nordstrom outlined the impacts on inflation between affluent and less-affluent consumers, which was also echoed by Macy’s. 

Then car-repair retailer Advanced Auto Parts said that soaring fuel prices and elevated inflation led to declines in do-it-yourself demand.

Retailers are having a tough time as low-tier consumers appear exhausted. Even Dollar Tree slashed its full-year profit outlook, citing a higher cost of living and inventory woes due to economic pressure on low-tier consumers. 

Remember that Walmart had already cut its profit outlook as consumers purchased less-profitable groceries.

Also from the summer was AT&T when CEO John Stankey said customers are starting to put off paying their phone bills. 

And then there’s the figure of at least 20 million households — or about 1 in 6 American homes — are behind on their power bills. 

Retailers warning about the souring state of less-affluent consumers is troubling, despite Biden and his senior aides reaffirming every week that everything is wonderful ahead of the midterm elections in November.