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Shopping in the US during inflation: Rich go to Macy's, poor go to Walmart

Inflation at its highest level in decades is creating a divergence in US consumer behavior.

Wealthy shoppers are splurging on new outfits at Macy's, Nordstrom and other high-end stores, while lower-income shoppers are cutting back on spending on non-essential items, top retailers said.

On Thursday (May 26), Macy's said sales at its stores that were open for at least a year or more rose 12.4% in the latest quarter year-over-year.

"Despite macroeconomic pressures on consumer spending increased during the quarter, our customers continued to shop," Macy's CEO Jeffrey Gennette said in a press release.

Macy's has seen a "remarkable shift" in consumers buying clothing for special events and shopping in stores, Gennette said. Women's dresses, women's shoes, accessories and tailor-made men's clothing saw strong sales in the quarter.

“Luxury sales remain the highlight of our business as the purchasing behavior of high-income consumers has so far been less affected by inflation. Customers with an annual income of less than $75,000 are the ones most affected," he said on a call with analysts.

After Macy's earnings forecast was released, the company's stock price jumped 12% in early trading on Thursday.

Nordstrom on Tuesday also recorded strong sales in its most recent quarter and raised its full-year earnings forecast. Nordstrom also noticed similar shopping trends as Macy's.

 “Customers refresh their wardrobes for occasions like social events, travel, and back to the office,” says Nordstrom. The department store sector has struggled in recent years, but Macy's and Nordstrom are benefiting from shopping for the needs of more affluent consumers."

Clothing and luxury goods brands have also capitalized on spending from higher-income shoppers.

“Our consumers recover very quickly. They are in the higher income class and during the Covid pandemic has shown that their desire for this brand has increased,” said Ralph Lauren CFO Jane Nielsen.

However, there is a divergence in shopping behavior between classes, some companies said. The federal stimulus is over and inflation is rising at its fastest pace in decades, prompting low-income consumers to change the way they shop.

The companies say lower-income shoppers are reducing spending on unnecessary items, choosing cheaper private labels and buying fewer items.

“I think what we're seeing is a bit of a ramification. So there are some customers who are buying those higher-end brands, but there's also a lot of customers looking to the cheaper brands," said Kohl's CEO Michelle Gass.

Walmart also said some consumers have switched from buying a full gallon of milk to a half-gallon and to cheaper grocery brands.

“Clearly, with higher fuel and food prices, spending on non-essential items for lower class customers is getting squeezed. We saw less customer spending in the first quarter,” said Ross Stores CEO Michael Hartshorn.