Walmart Warns That Shoppers Are Feeling Squeeze of Higher Prices

It was a similar story at Home Depot, which said that profits would be slimmer this year. The home-improvement retailer’s business is closely tied to the housing market, which has been increasingly shaky as mortgage rates have risen. Home Depot’s shares fell more than 5 percent.

Last year, “we observed a resilient customer who is less price sensitive than we would have expected in the face of persistent inflation,” Ted Decker, Home Depot’s chief executive, said on a call with analysts. But toward the end of the year, “we noted some deceleration in certain products and categories, which was more pronounced in the fourth quarter,” he added.

The results from Home Depot and Walmart suggested that the resilience of consumers may be starting to crack, as inflation and rising interest rates squeeze household budgets.

The retailers’ somewhat downbeat forecasts portend a potential turnaround from recent economic data that showed the economy running hot at the start of the year. In January, job growth was strong, consumers kept spending and prices rose briskly. That led investors to question their assumptions that the Federal Reserve could let up on interest-rate increases soon, with many now expecting Fed officials to raise rates a few more times to slow the economy and tame stubbornly high inflation.

Some key suppliers, like Procter Gamble and Unilever, have said they would continue raising prices this year, forcing retailers like Walmart to choose between raising their own prices or seeing profit margins shrink. But others, like Kraft Heinz and PepsiCo, said they would stop raising prices after making hefty increases last year, which led to consumers cutting back and trading down to cheaper brands.

Article source: https://www.nytimes.com/2023/02/21/business/walmart-earnings-consumers.html