Walmart and Target Just Sounded the Alarm About This Problem for Shoppers
The rising price of products could have bigger effects than you think.
As two of the largest retailers in the U.S., Target and Walmart stores are daily destinations for countless shoppers, so when they make any changes, it can be unsettling. You've likely already noticed markups on the price of your eggs or milk, a result of inflation spurred by disruptions in the global supply chain. All roads lead back to—you guessed it—the COVID-19 pandemic. Now, recent reports from Target and Walmart indicate that rising prices and inflation are unlikely to disappear, and there may be even more challenges down the road. Read on to find out what problem shoppers need to be prepared for.
The pandemic has affected every sector of the economy.
Healthcare and frontline workers faced an enormous challenge during the pandemic, working to care for patients while trying to contain an ever-evolving virus. But all economic sectors felt the ramifications of COVID, particularly small businesses and restaurants that were forced to close their doors during lockdown. Now, many stores are still feeling the pressure thanks to lingering supply chain issues brought on by the pandemic. And with higher expenses and rising inflation, consumers may start to feel even more noticeable effects.
Recent reports from Walmart and Target could be signs of a larger problem.
Both Walmart and Target have experienced significant decreases in profit for their first quarters, which could signal an oncoming recession—or a recession that we're already in, experts say. Higher costs don't appear to be letting up, as indicated by both businesses' earnings, which could later "test the strength of the consumer," according to Edward Moya, senior market analyst at OANDA, The Hill reported.
"Growth was challenged by unusually high costs, resulting in profitability well below what we expected to be and where we expect to operate overtime," Brian Cornell, CEO of Target, said on a May 18 earnings call (via Fox Business). After reporting earnings far below Wall Street analysts' expectations, Target shares decreased by 25 percent the same day, which is the most staggering drop since 1987. Walmart, on the other hand, saw shares decrease by 11 percent on May 17. This was also the retailer's worst day in 35 years, Fox Business said, and shares fell yet again on May 18, down another 7 percent.
Financial experts warn consumers to be prepared.
Inflation is problematic for businesses and consumers alike, and currently, there doesn't seem to be an end in sight. April marked the highest rate of consumer inflation in 40 years, hitting 8.3 percent, Fox Business reported. You may have noticed food prices creeping up, but gas has certainly been the most concerning, as the price of unleaded fuel is currently up 44.2 percent from last year's prices.
Many of us are feeling the strains of rising costs and have hit the pause button on nonessential purchases. According to CNN Business, this was reflected in Target's inventory reports, which show that consumers are still spending money on essential food and beauty items, but are skipping out on splurges like televisions. Jeff Sica of Circle Squared Alternative Investments told Fox Business that with prices up and purchases down, we could be headed into a recession.
"What we saw out of these two major retail earnings reports is that the consumer is about to break and that the consumer cutting back on spending with less confidence in the future indicates where we're headed," he said. "I believe we're already in the recession, but it indicates that we're headed into a deeper recession."
Target and Walmart aren't the only two stores feeling the pressure.
According to CNN Business, other retailers like TJX (owner of T.J. Maxx and Marshalls) had sales that were below estimates on May 18. Retail stores have had to raise hourly wages in order to attract employees to join or rejoin the workforce, with Target citing that as a contributing factor to lower earnings. The lack of stimulus checks, which encouraged "discretionary spending," has also been noted as a key difference between the previous fiscal year.
However, there are stores that actually saw strong sales this week, CNN Business reported. These big retailers include Home Depot and Lowe's, both of which are profiting from the booming housing market.