May 30, 2023 | Retail Bellwethers Warn on Recessionary Trends

Last week, Costco joined the long line of retail bellwethers sounding the alarm on recessionary trends in consumer spending. It’s everywhere. It’s everywhere. See What Costco’s baskets reveal about consumer finances, to wit:

The latest evidence came from Costco whose average customer tends to be higher income. The retailer on Thursday said comparable sales excluding fuel in constant currency rose 3.5% in the quarter ended May 7 compared with a year earlier—lower than the 4.2% growth Wall Street analysts expected. It was also the weakest comparable sales growth Costco has seen since 2017. This follows Dollar Tree reporting more business from shoppers who earn annual incomes of $80,000 or more in its stores. Those shoppers weren’t looking for party favors or tchotchkes; they were putting everyday necessities in their basket. Likewise, Walmart last week said that it continues to gain grocery market share among higher-income shoppers.

While shoppers still love going to Costco—traffic at its stores rose 4.8% globally and memberships grew 7%—they are walking out with smaller receipts. The average daily transaction declined 4.2% as shoppers bought fewer big-ticket discretionary items…

Costco’s baskets reveal that consumers are looking for ways to save on necessities. Chief Financial Officer Richard Galanti said on Thursday’s earnings call that sales have shifted from beef to poultry and pork, a trend the company historically sees during recessions. Some are even switching to canned products such as chicken and tuna. The share of sales that came from its Kirkland Signature private brand rose 1.2 percentage points last quarter—much faster than the pace of private label share growth it has seen historically. Interestingly, Galanti said customers bought apparel “in a big way,” which could mean more higher-income consumers are trading down from department stores.

Danielle Park May 30th, 2023

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