The big-box retailer, which is the country’s largest grocer, said everyday necessities are eating up more of household budgets and leaving shoppers less money to spend on items they want, such as new clothing. Walmart said it will have to offer deep discounts to get rid of general merchandise, hurting its profit margins.
For Wall Street, the announcement served as another warning. It heightened concerns about shifting consumer behavior and whether inflation has brought pandemic-fueled shopping sprees to an end. Major retailers including Walmart and Macy’s are scheduled to report earnings in mid-August.
“This is a sneak peek inside the challenges and the decision making that’s happening inside of the household,” said Steph Wissink, a retail analyst for Jefferies.
Even though economists have not declared a recession, Wissink said “we appear to be firmly in a ‘discretionary goods recession.'”
Walmart’s updated outlook comes as investors sift through months of conflicting data points. The labor market has remained strong, but consumer sentiment has weakened. Inflation has grown at the fastest pace in decades, yet airports are bustling with summer travelers. Thousands of Netflix customers have canceled subscriptions, but McDonald’s and Coca-Cola say people have been willing to pay more for burgers and sodas so far.
Other factors have complicated the picture, too. Retailers are lapping a period when shoppers had extra money from stimulus checks and savings from what they typically spent on services like gym memberships, hotels and dining out. Pandemic-related purchases surged as people sprang for new kitchen gadgets, workout equipment and leisurewear — categories that have now largely fallen from favor.
Craig Johnson, founder of retail consultancy Customer Growth Partners, said the slump in discretionary spending is due to lower-income households spending more on essentials because of inflation. In addition, he said higher earners are spending more on services such as travel and entertainment instead of products coming out of the pandemic.
“Walmart’s pre-announcement was hardly a surprise, and will be the first of several similar pre-announcements,” he said.
Target was one of the first companies to signal choppy waters ahead. It cut its forecast for profit margins twice, saying it would have to cancel orders and increase markdowns to get rid of unwanted merchandise. It chalked up the problem to having the wrong inventory, such as TVs, bikes and household appliances that were popular during the pandemic, and said it wanted to clear space for back-to-school goods and holiday shopping.
Kohl’s, Gap, Bath & Body Works and Bed Bath & Beyond issued profit warnings in the past few weeks. And several companies, including online styling service Stitch Fix, video game retailer GameStop and e-commerce company Shopify have announced layoffs.
Mall-based retailers — which sell a lot of discretionary merchandise like apparel and home goods — are expected to get caught in the crosshairs.
Analysts at Deutsche Bank said they expect full-year guidance reductions from all of the apparel retailers the bank covers, as many had been forecasting an acceleration in sales and margins in the back half of the year.
Credit card data from Bank of America shows sales of clothing in the U.S. have been declining since the week ended March 12, and were down 15.6% from year-earlier levels during the week ended July 2.
Lorraine Hutchinson, an analyst for Bank of America Securities, said in a note to clients on Tuesday that her firm is cutting its earnings estimates across the apparel industry as inventories pile up and discounts are becoming rampant.
Hutchinson said niche retailers that cater to higher income shoppers, such as Lululemon, could still perform well. LVMH, which owns high-end brands like Dom Perignon and Louis Vuitton, also signaled Tuesday that higher income shoppers might still be willing to splurge. The company said its sales climbed 19% in the second quarter year over year when stripping out currency changes, led by growth in its fashion and leather goods segment.
For discounters, an upside of surging inflation is that price-sensitive customers may visit their stores more often in search of cheaper household staples. Walmart’s share of U.S. grocery dollars, for example, was 21% as of the end of June, up from 18% six months earlier, according to research firm Numerator.
But groceries have lower profit margins than discretionary items, such as electronics and apparel. That’s the reason why Walmart slashed its profit forecast, even while raising its forecast for same-store sales.
Walmart strikes exclusive streaming deal to give Paramount+ to Walmart+ subscribers
In this photo illustration, a woman’s silhouette holds a smartphone with the Walmart logo displayed on the screen and in the background.
Rafael Henrique | Lightrocket | Getty Images
Starting in September, customers who belong to the retailer’s program will get free access to an ad-supported plan on Paramount+, which includes movies and shows such as “Star Trek,” “Paw Patrol,” “The Godfather” and “SpongeBob Squarepants.”
Walmart launched Walmart+ nearly two years ago to drive sales and deeper customer engagement. The program costs $98 per year, or $12.95 per month, and is the company’s answer to Amazon Prime, but with a different set of perks. It includes free shipping of online purchases, free grocery deliveries for orders of at least $35 and discounts on prescriptions and gas.
Now it will also include access to the “essential tier” of Paramount+, which typically costs $4.99 per month and includes commercials. Paramount also sells a premium product without ads for $9.99 per month.
“With the addition of Paramount+, we are demonstrating our unique ability to help members save even more and live better by delivering entertainment for less, too,” Chris Cracchiolo, general manager of Walmart+, said in a news release.
Walmart said in a news release on Monday that it has had positive membership growth every month since its launch in September 2020. But since launching the service, the retail giant has declined to share its subscriber total.
According to estimates by market research firm Consumer Intelligence Research Partners, Walmart+ had 11 million customers as of July — the same as in the April. A survey by equity research firm Morgan Stanley pegged the subscriber count higher at about 16 million members as of May.
Paramount+ is one of the many services that compete for eyeballs in the streaming industry. Paramount Global announced earlier this month that Paramount+ has 43.3 million subscribers around the world. The company aims to reach 100 million subscribers by 2024.
The deal with Walmart will give Paramount+ a new distribution channel to add subscribers as well as a branding boost. Paramount+ is the only streaming service that has struck a deal with Walmart and wanted to launch exclusively to get full marketing attention, according to a person familiar with the deal who was not authorized to speak publicly about it.
Jeff Shultz, chief strategy officer and chief business development officer of Paramount Streaming, said the two companies have worked closely together for years by selling consumer products in Walmart’s stores.
The Wall Street Journal first reported the news of the deal.
Walmart will report its second-quarter earnings on Tuesday.
WATCH: Walmart+ members to get access to Paramount+
People are spending lots of money on makeup and beauty, and retailers are cashing in
Target has added new brands to its beauty department. At a growing number of stores, it also has mini Ulta Beauty shops with prestige brands.
Melissa Repko | CNBC
As prices creep up, some people have decided against getting a new outfit, delayed big purchases like TVs or cancelled Netflix accounts.
But for now, they’re still splurging on beauty.
For retailers, the beauty category has become a rare bright spot as people pull back on spending amid surging inflation. Often seen as an affordable luxury, it is the only discretionary retail category with rising unit sales in the first half of the year, according to The NPD Group, which tracks categories including clothing, tech and toys, as well as beauty products at specialty and department stores.
“You may not be able to go out to eat out as much, but you can buy yourself a lipstick,” said Olivia Tong, an analyst for Raymond James.
This spring, Target called out the strength of its beauty sales, even as it twice cut its profit outlook for the year. Walmart is also investing in the category and rolling out new beauty displays to hundreds of stores, despite its warnings that shoppers are skipping over discretionary categories like apparel.
Other factors work in the industry’s favor, too. Weddings and parties have picked up again. More people are heading back to the office, and can no longer hide behind their Zoom filters. And during the pandemic, some people got in the habit of pampering themselves at home with face masks, hair treatments and other beauty products.
Larissa Jensen, a beauty analyst for NPD, called it the return of the “lipstick index” — a term made famous by Leonard Lauder, chairman of the board of Estee Lauder, to explain climbing sales of cosmetics during the recession in the early 2000s.
As consumer sentiment has fallen, lipstick sales volume has climbed, Jensen said. That increase has carried over to other beauty products. Makeup sales, including lipstick, are up 20%, skincare is up 12%, fragrance is up 15% and hair care is up 28% for the first half of the year — and they are all growing in units, as well as dollars, she said.
Much of the beauty category’s growth is coming from households that earn over $100,000 a year, and Jensen said discounters may have a tougher time capitalizing on the trend. Still, beauty’s resilience could provide some cushion for big-box retailers in a slowdown − if they can figure out how to cash in.
Beauty at $3, $5, $9
Walmart and Target both cut their profit forecasts after having to mark down prices on apparel, home goods and other products that aren’t selling. Yet both companies are refreshing their beauty departments and adding new brands to attract customers.
A year ago, Target began opening hundreds of Ulta Beauty shops inside of its stores with brands including MAC Cosmetics and Clinique. The company plans to add more than 250 this year and eventually have the shops at 800 locations, representing about 40% of its U.S. footprint.
And after seeing fragrance become the biggest sales-driver in prestige beauty during the last holiday season, it also added popular fragrance brands to the Ulta shops, including Jimmy Choo Man, Juicy Couture and Kate Spade New York.
Since January, Target has introduced more than 40 brands to its stable of beauty products, including “clean” products that are free of certain ingredients and Black-owned and Black-founded brands.
On an earnings call in mid-May, CEO Brian Cornell said beauty saw double-digit growth in comparable sales in the fiscal first quarter versus the year-ago period. That broke from other categories, besides food and beverage and essentials, which saw a noticeable slowdown.
Walmart has added about a dozen prestige beauty brands to select stores. It struck a deal with British beauty retailer, Space NK, to add the assortment and develop a private label.
Melissa Repko | CNBC
At Walmart, new beauty displays were set up this summer at 250 of the company’s locations, featuring Mario Badescu, Patchology and other brands typically found at specialty beauty shops or department store makeup counters.
A more affordable display called “Beauty Finds” also began rolling to nearly 1,400 stores, offering shoppers lip glosses, lotions and more for $3, $5 or $9.
Walmart has also struck exclusive deals with direct-to-consumer companies like Bubble, a skincare brand with colorful packaging and focus on Gen Z and young millennial customers. For the past few quarters, it has seen double-digit growth in its cosmetics business, said Creighton Kiper, Walmart’s vice president of merchandising for beauty.
“Beauty is this fascinating category where it’s not like food and it’s not like health and wellness, but yet the customer interacts and engages with it every day,” he said in an interview earlier this summer. “You’ve got this mental wellness component to it around confidence and feeling good about yourself.”
When budgets get tighter, Kiper said customers might also fall back on skills they gained during the pandemic — such as doing their nails or hair color at home — and go to Walmart to shop for an at-home twist on the salon.
Ashley Marie Lemons, a stay-at-home mom in suburban Atlanta, said her family is eating out less often because they’re spending more on groceries, diapers and other necessities. She said she cooks more meatless meals and buys hot dogs instead of pricier meats, such as ribs.
But she said she still allows herself to spend about $50 a month on beauty products like eyeshadow pallets and mascaras.
“It’s an outlet for me,” she said. “Some people like art. It’s a creative way for me to express myself.”
Salman Rushdie reportedly on a ventilator and unable to speak after he was stabbed
Author Salman Rushdie is reportedly on a ventilator and unable to speak after being attacked while on stage in western New York on Friday.
State troopers confirmed in a press conference Friday afternoon that Rushdie was stabbed at least once in the neck and at least once in the abdomen while on stage for a panel in Chautauqua in western New York.
Staff and audience members rushed to the stage and pinned the assailant to the ground following the attack, state troopers said. A state trooper who was present took the suspect into custody with the assistance of a local sheriff’s deputy.
Rushdie was treated by a doctor who was in the audience before emergency medical services arrived and airlifted him to a local trauma center.
After hours of surgery, Rushdie was reportedly on a ventilator and unable to speak on Friday evening.
“The news is not good,” Andrew Wylie, his book agent, wrote in an email reported by Reuters. “Salman will likely lose one eye; the nerves in his arm were severed; and his liver was stabbed and damaged.”
Author Salman Rushdie is tended to after he was attacked during a lecture, Friday, Aug. 12, 2022, at the Chautauqua Institution in Chautauqua, NY.
Joshua Goodman | AP
The state police department identified the suspect as Hadi Matar, age 24, from Fairview, NJ. The New York State Police is collaborating with the FBI and local police for the investigation.
A preliminary review of Matar’s social media accounts by law enforcement showed him to be sympathetic to Shia extremism and the causes of the Islamic Revolutionary Guard Corps, a law enforcement person with direct knowledge of the investigation told NBC News. Law enforcement officers reportedly found images of Solemani and an Iraqi extremist sympathetic to the Iranian regime in a cell phone messaging app belonging to Matar, according to NBC News.
There are no definitive links to the IRGC but the initial assessment indicates he is sympathetic to the Iranian government group, the official said.
The New York State Police released a statement immediately following the incident:
“On August 12, 2022, at about 11 a.m., a male suspect ran up onto the stage and attacked Rushdie and an interviewer,” the statement read. “Rushdie suffered an apparent stab wound to the neck, and was transported by helicopter to an area hospital. His condition is not yet known. The interviewer suffered a minor head injury. A State Trooper assigned to the event immediately took the suspect into custody.”
A spokesperson from the Chautauqua Institution, where the panel was being held, told CNBC that the organization was coordinating with emergency officials on a public response after the attack.
The Wylie Agency, which represents Rushdie, did not immediately respond to a request for comment.
Rushdie’s book “The Satanic Verses” forced him into hiding after it was banned in Iran and a $3 million bounty was put on his head. The Iranian government has distanced itself from the bounty, according to The Associated Press, but the fatwa has been continued by a semiofficial religious organization, which raised the bounty to $3.3 million.
Rushdie has been awarded many of the top literary prizes, including two Whitbread Prizes for best novel. He was knighted in 2007 while Tony Blair was prime minister. Blair released a statement on the attack.
Author Salman Rushdie at the Blue Sofa at the 2017 Frankfurt Book Fair on October 12, 2017 in Frankfurt am Main, Germany.
Hannelore Foerster | Getty Images
“My thoughts are with Salman and all his family,” Blair wrote on Friday. “A horrible and utterly unjustified attack on someone exercising their right to speak, to write and to be true to their convictions in their life and in their art.”
Rushdie was scheduled to sit on a panel alongside Henry Reese, president of City of Asylum in Pittsburgh, an organization that provides sanctuary to writers exiled under threat of persecution.
“We ask for your prayers for Salman Rushdie and Henry Reese, and patience as we fully focus on coordinating with police officials following a tragic incident at the Amphitheater today,” the Chautauqua Institution said in a tweet Friday. “All programs are canceled for the remainder of the day. Please consult the NYS Police statement.”
The institution’s website described the panel as “A discussion of the United States as asylum for writers and other artists in exile and as a home for freedom of creative expression.”
Rushdie was the former president of PEN America, a nonprofit that defends freedom of expression and supports persecuted writers. PEN America CEO Suzanne Nossel released a statement in the wake of the attack.
“Just hours before the attack, on Friday morning, Salman had emailed me to help with placements for Ukrainian writers in need of safe refuge from the grave perils they face,” Nossel wrote. “Salman Rushdie has been targeted for his words for decades but has never flinched nor faltered. He has devoted tireless energy to assisting others who are vulnerable and menaced.”
New York Gov. Kathy Hochul thanked the New York State Police for their response to the attack on Rushdie.
“Our thoughts are with Salman & his loved ones following this horrific event,” wrote the governor. “I have directed State Police to further assist however needed in the investigation.”
Hochul later said Rushdie is alive.
“It was a state police officer that stood up and saved his life,” the governor said during an event about gun violence, adding that the event moderator was also attacked. “We’re monitoring the situation, but he’s getting the care he needs at the local hospital.”
This is the latest in a series of onstage attacks against public figures, including Rep. Lee Zeldin, R-N.Y., in a town near Rochester, New York, earlier this summer, Dave Chappelle at the Hollywood Bowl, and Chris Rock during the Oscars.
NBC News contributed to this report
Correction: Rep. Lee Zeldin, R-N.Y., was attacked in a town near Rochester, New York, earlier this summer. An earlier version misspelled his name and misstated the location.
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