Retailers roll out recession playbook

The U.S. economy may not be in a recession, but it feels like it in a lot of stores across the nation.

Take Kroger, for instance. Inflation-pinched customers are downloading more coupons, cooking meals at home and switching to lower-priced private label brands to save money, the grocery giant’s CEO, Rodney McMullen, told CNBC’s “Squawk on the Street” earlier this month.

“What customers are telling us, they’re already behaving like they’re in a recession,” he said.

Now, major retailers are dusting off their playbook for a recession — or at least for a period of slower sales. Companies previewed their strategies for the tougher backdrop in recent weeks, as they reported holiday-quarter earnings and shared full-year outlooks.

Target is bulking up on food and household essentials to drive foot traffic. Macy’s and Walmart are trying to win more sales from their most loyal customers. Best Buy and others are chasing new and exclusive products that may nudge customers to open up their wallets and even pay full price.

As the travel and restaurant sectors bounce back, it looks like the “rolling recession” is coming for the retail sector, even if the economy remains strong. Many retailers are calling for flat to declining sales this fiscal year, especially once the lift from inflation is taken out. It’s a sharp turnabout from the early years of the pandemic, which was a boom time for retail spending.

Here’s a look at some of retailers’ strategies.

Target, for instance, said it has intentionally skewed its inventory mix toward food and household essentials. Its overall inventory declined 3% year over year as of the end of the fiscal fourth quarter, but its inventory of discretionary merchandise dropped 13% during the same period.

Walmart, the country’s largest grocer by revenue, benefits from getting a larger chunk of sales from groceries. It has used lower-priced groceries to draw in shoppers across income levels, including more households with annual incomes of more than $100,000.

Yet selling evergreen items comes with a downside: They tend to be less profitable.

Walmart Chief Financial Officer John David Rainey acknowledged that on an earnings call with investors in late February, saying “product mix shifts have negatively impacted our margins.”