The “stubborn” inflation of food in the US slows the consumption of other goods

By: News Team

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The "stubborn" inflation of food in the US slows the consumption of other goods

As food prices rise, Americans are cutting back on purchases of other products, such as toys, clothing and household items, in a trend that is struggling for retailers.

Comments made this week by Walmart (NYSE) executives:WMT) and other retailers show how Americans are changing their shopping habits and looking for opportunities in the face of the highest inflation in the last generation.

At Walmart, the world’s largest retailer by revenue, Americans continue to spend but are more “selective, demanding and thoughtful” about what they buy, Global Chief Executive Doug McMillon told analysts.

Rising food prices led to a decline in sales of electronics, toys, home and clothing in Walmart’s latest quarter. McMillon estimates that inflation in non-fresh food and immediate consumption items will remain high “for some time.”

The average cost of food consumed at home rose 11.3 percent in January from a year earlier, according to Labor Department data.

This figure is almost 5 percentage points higher than the overall rate of inflation, one of the largest differences since the 1970s. The increase in the cost of food has exceeded headline inflation for almost a year. “Food inflation has been the most stubborn of all categories,” said John Furner, Walmart’s U.S. CEO.

As predicted by Coresight Research, annual retail food sales will grow by about $500 billion between 000 and 2022.

The sharp drop in sales in categories other than food is forcing retailers like Target (NYSE:TGT) to cut prices on everything from toys to electronics.

“If I were a chief financial officer right now, I probably would have to be talking about the most conservative guidance possible,” said David Wagner, portfolio manager at Aptus Capital Advisors. The firm owns about $7 million in Walmart stock and recently sold its investment in Target.

DIY CRISIS

Walmart can weather this tougher period better than other retailers, investors said, as food accounts for a larger share of its sales.

While food accounts for 56% of Walmart’s sales, it accounts for about 20% of Target’s sales, which relies more on home furnishings, apparel and beauty.

Sales for Target’s last fiscal year, which is due to report Feb. 28, are expected to rise 2.7 percent, according to estimates, well below Walmart’s 6.7 percent increase.

“There is still risk in the market … but Walmart is able to manage that risk and that’s why we have stocks. We have it overweight compared to, say, Target,” said Eric McNew, portfolio manager at Summit Global Investments, which no longer owns Target stock.

Retailers of household goods are under pressure, and sales of household goods and home improvement items, including garden products, in 2022 accounted for just 11% of total retail sales, up from 15% in 2017, according to Coresight, which draws data from the U.S. Census Bureau.

In Home Depot (NYSE:HD), consumers spent less on products such as soft flooring and roofing in the most recent quarter, Chief Executive Edward Decker said.

At apparel and homeware retailer TJX, sales of its HomeGoods unit fell 11% in 2022.

“We’re still trying to figure out the household trend nationally,” TJX CEO Ernie Herrman told analysts on Wednesday. Lowe’s Cos Inc, which files its accounts on March 1, could feel a bigger pinch than competitor Home Depot, as Lowe’s tends to attract more DIY consumers than inflation-resistant builders and professional contractors.

As for clothing sales, Wall Street will learn more about the impact of inflation in March, when specialty retailers such as Kohl’s, Nordstrom (NYSE:JWN) and Victoria’s Secret & Co report their quarterly results.

“The macroeconomic outlook is on shaky ground and I think some of the data suggests that we may not have seen the end of this process… and that recession looms on the horizon,” McNew said.

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