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.
n 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.”