Despite recent economic data remaining resilient, consumer confidence in the US has yet to fully recover, and more cautious spending habits have followed.

In the current US stock earnings season, US retail giant Target (Target) lowered profit expectations twice in three weeks; the second-quarter results of Dollar General, the largest discount retailer in the US, experienced a thunderstorm and lowered its full-year results guidance, causing the company's stock price to plummet on the same day to the biggest one-day decline in history, all showing bleak consumer prospects.

“Buffett's new favorite” Ulta and “The King of Yoga Pants” Lululemon's performance in the latest quarter fell short of expectations, which means that consumers are beginning to shift more spending to necessities and reduce purchases of luxury goods and non-essential goods.

According to data from the World Federation of Large Businesses (Conference Board), the US consumer confidence index rose to a six-month high in August, but the confidence of low-income consumers with an annual income of less than $25,000 declined.

The wave of “consumption downgrading” is spreading

Notably, in addition to luxury goods and non-essential goods, American consumers' consumption of essential goods has also begun to decline.

According to a survey launched by Dollar General, more than 60% of customers said they had to make sacrifices to buy basic necessities due to rising prices, and most said their finances were worse than they were six months ago.

Some analysts pointed out that Dollar General's financial pressure may be due to an insufficient customer base. Although overall consumption is sluggish, the economic pressure on middle- and high-income consumers is not enough to switch to one-dollar stores because the economy is still resilient.

Truist Securities stock analyst Scot Ciccarelli wrote in a report:

“We still believe that a strong employment environment is preventing consumers from switching to one-dollar stores like Dollar General on a large scale.”

However, middle- and high-income groups have begun to be downgraded from high-end department stores to large-scale discount retail supermarkets. The financial reports of major supermarket chains are a good example.

High-end department stores Macy's, Kohl's, and Dillard's all reported a year-on-year decline in comparable sales in their latest financial reports. As a shopping mall that mainly targets middle-income consumers, Kohl's said its customers “feel the higher cost of living burden.”

The high-end department store chain Nordstrom also said that its comparable sales growth rate of 0.9% in the second quarter was largely due to the 4.1% year-on-year sales increase of its discount chain Nordstrom Rack, and was mainly supported by high-income consumers.

However, as a representative of popularized large supermarkets, Wall Street heard that Walmart's grocery prices were about 25% lower than traditional supermarkets, and that the second-quarter results achieved “contrarian growth”. Both revenue and profit exceeded expectations, and indicated that its market share among high-income households was increasing.

Considering that more and more wealthy people are starting to “downgrade their spending,” Kohl's said it is expected to be “more promotional” than ever before during the holiday season, while Dollar General made it clear that more discounts will be offered in the coming quarters.