What’s News in Earnings: How Retailers Are Dealing With Price-Conscious Shoppers

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0:31Alex Ossola:Hey, listeners, it's Friday, March 20th. I'm Alex Osola for The Wall Street Journal. And this is What's News in Earnings, our look at some of the biggest themes standing out this earnings season. The holiday quarter is the most important time of year for U.S. retailers. And despite worries about inflation and the job market, consumer spending largely held up. We'll look at a range of retailers to see patterns in how Americans are spending from Walmart to discounters to Macy's, one of the last traditional department stores which just reported surprisingly strong results. Some companies are navigating changes in consumer shopping habits better than others, but many of them face the same uncertainties.

1:10Alex Ossola:There's government policy on tariffs that keeps changing, which affects their costs. And the Iran war is threatening to send inflation even higher.

1:23Alex Ossola:Joining me to break down what all this means for the retail industry is WSJ reporter Kelly Clunan. Welcome, Kelly. Thanks for having me. Kelly, Walmart posted strong sales growth in its most recent quarter, but it also lost its crown as the country's largest company by revenue to Amazon. How are Walmart and other retailers trying to keep up in the e-commerce space? Yeah, totally. For quite a while now, Amazon has been winning business from other retailers with its quick shipping options. This week, it even said that it's rolling out one-hour and three-hour delivery services across the U.S. So to compete, I think a lot of retailers are really just looking to up their own delivery times.

2:00Target, which has been struggling with sluggish sales for several years now, said earlier this month that it plans to launch next day delivery in more than 20 new metro areas. And then Walmart has also been expanding its own same day delivery service in recent years.

2:14Alex Ossola:Right. Walmart CEO John Furner mentioned the growth of its fast delivery option in Walmart's latest earnings call. The investments we've made in technology and supply chain help us deliver items even faster. They're paying off. Here in the U.S., customers using fast delivery, and that's delivery in under three hours, grew more than 60 % for the year. You just heard Walmart talk a little bit about the investments that they've made in technology and in automation. And it's also said that those efforts have helped to cut down on labor costs. And Walmart also has been working on its own AI shopping assistant called Sparky, which it said has helped boost average order values.

2:48Alex Ossola:Shifting a little bit, gas prices have been soaring because of the war in the Middle East. But even before that, people were pretty worried about inflation. What do the stores have to say? Yeah, inflation has definitely been a major theme across the industry for a while now. And even as consumers seem to remain resilient and continue spending, their wallets have definitely come under pressure as inflation just remains stubbornly high. Some retailers have noted, though, that inflation for some products has come down recently, which has helped lower prices a bit. But Costco, for example, said it has already lowered the cost of some products like eggs, cheese, coffee, because of lower inflation for those things.

3:27It's also said that if it gets tariff refunds after the Supreme Court struck down Trump's tariffs last month, that it would then pass on those lower prices to shoppers. I think Costco is a really interesting case because it also got sued by a customer who won refunds on items because of the tariffs. The lawsuit basically wants to force Costco to pass along any refunds it might get from the government to customers. But it really is still a huge question mark of when or if any of these companies will get refunds from the government and how that would flow through in the form of lower prices or refunds to customers.

4:00Alex Ossola:So, Kelly, we know people are worried about prices. They have been for a while. What kinds of retailers are benefiting from that? Yeah, a lot of stores have been talking about this kind of K-shaped economy where lower-income consumers are having a harder time. They're sort of trading down or remain on the hunt for value, while higher-income shoppers generally seem to be doing pretty well and they continue to spend. That dynamic means a couple of things. For one, off-price retailers like TJX, which owns TJ Maxx and Marshalls, Ross Stores, and Burlington all had pretty solid quarters as people looked for value.

4:35Ross said that its customer base has grown, adding new shoppers from a range of income levels in ages, and its CEO even said that off-price retailers in general are gaining market share from more mainstream retailers, including department stores. At the same time, other retailers have really pointed to strength from higher-income consumers, including Macy's, which reported earnings earlier this week. Macy's said its customers tend to have higher incomes and generally have been more resilient than lower-income shoppers, which helped boost sales at its Bloomingdale's brand, which tends to have more luxury products.

5:08Alex Ossola:That was Wall Street Journal reporter Kelly Clunan. Kelly, thanks so much for joining us. Thanks for having me. And that was What's News in Earnings. Today's show is produced by Pierre Bien-Aimé with supervising producer Tali Arbel. Additional sound courtesy of S &P Global Market Intelligence. Later today, we'll have the PM edition of What's News out for you as usual. And we'll be back with you next earnings season looking at more reports from major U.S. companies. Until then, I'm Alex Have a great day.

6:02Irish flute or those calligraphy pens or that daunting Beef Wellington recipe card and leave the laundry to us. Rinse. It's time to be great.