Consumers’ hunt for value boosts sales at retailers heeding the call

Consumers are hungry for value, and the retailers feeding those cravings are getting a boost.

Target and off-price retailer TJX – the parent company of TJ Maxx, Marshalls and HomeGoods – saw sales grow in the second quarter as shoppers snatched up opportunities for lower prices on groceries, household essentials, apparel and kitchenware.

“The conversation seems to have taken a turn to incremental, value-seeking behavior,” said Dylan Carden, an analyst at William Blair. “It’s just a continuation of what a lot of people have been saying for a long time, which is that the consumer only has so much capacity to continue to absorb price.”

Consumers have remained exceptionally resilient despite inflation. Food costs, while easing, are still 21% higher than they were in July 2020. Nonetheless, retail sales in July rose 1% from June, according to Commerce Department data released last week.

While the results were probably buoyed by summer sales at several retailers – including Amazon, Target and Walmart – they also suggested that consumers are becoming more selective in their purchases even as they remain willing to spend. (Amazon founder Jeff Bezos owns the Washington Post.)

“American families continue to deal with a lot,” Richard Gomez, Target’s chief commercial officer, said in the earnings call Wednesday. “Yes, they’re hunting for deals and everyday value.

“But they’re also willing to shop when they find that right combination of fashion and newness at the right price.”

Target’s second quarter was better than Wall Street expected, leading its stock price to surge 12% by midday Wednesday. Comparable sales grew 2% compared with the same period last year, and purchases in discretionary categories, like apparel and home decor, also grew.

The results come months after the company announced it was lowering prices on roughly 5,000 items, including staples such as milk, produce, bread and coffee, as well as diapers and pet food.

Since then, the number of transactions grew 3% year-over-year.

Target, along with several other retailers, has also leaned into its private-label brands. Gomez noted the company is investing in new offerings among its apparel, food and home brands. Walmart, which reported stronger-than-expected sales last week, also pointed to its private-label assortment as a contributor to its successful quarter. The nation’s largest retailer has gained traction among all income levels, executives said.

Meanwhile, TJX saw sales grow 5.6% compared with the same period last year, keeping up its consistent growth over the past few years, which boosted its share price by more than 5% midday Wednesday. The company raised its full-year guidance, with chief executive Ernie Herrman noting in a call with analysts that “we’re convinced that consumers will keep seeking value.”

“In many ways, this is TJX’s market to shine in as consumers migrate to retailers which allow them to stretch their dollars further,” said Neil Saunders, a managing director at the analytics company GlobalData.

TJX offers product assortments that “feel fresh and contain a good mix of compelling brands and great deals,” he added.

In contrast, Macy’s has continued to face headwinds.

The department store cut its full-year sales forecast Wednesday after its second-quarter revenue fell 3.8% from the same period last year. Same-store sales slid 4% from a year ago.

The company has struggled to draw consumers and had to mark down more products than expected to rekindle demand. Shoppers became more “discriminating” as the quarter progressed, Macy’s chief executive Antony Spring said during the retailer’s second-quarter earnings call Wednesday.

“Everybody is being a little more cautious as they watch what’s going on in the macro environment and just being more judicious in the purchases they make,” Spring said.