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while recent economic data has remained resilient, u.s. consumer confidence has yet to fully recover, leading to more cautious spending habits.

during this round of u.s. stock earnings season, u.s. retail giant target lowered its earnings forecast twice in three weeks; dollar general, the largest discount retailer in the united states, reported disappointing second-quarter results and lowered its full-year guidance, causing the company's stock price to plummet that day, marking the largest single-day drop in history, both of which show a bleak consumer outlook.

the performance of "buffett's new favorite" ulta and "the king of yoga pants" lululemon in the latest quarter also fell short of expectations, which means that consumers are beginning to shift more spending to necessities and reduce purchases of luxury goods and non-essentials.

data from the conference board showed that the u.s. consumer confidence index rose to a six-month high in august, but confidence among low-income consumers with annual incomes below $25,000 declined.

the trend of “consumption downgrade” spreads

it is worth noting that it is not just luxury goods and non-essentials, american consumers' spending on necessities has also begun to downgrade.

more than 60% of dollar general customers said they had to make sacrifices on basic necessities because of rising prices, and a majority said they were worse off financially than they were six months ago, according to a survey.

some analysts pointed out that dollar general's financial pressure may stem from its insufficiently broad customer base. although overall consumption is sluggish, the economy remains resilient and the economic pressure on middle- and high-income consumers is not enough to make them turn to dollar stores.

truist securities equity analyst scot ciccarelli wrote in a note:

“we continue to believe that the strong employment environment is a barrier to a large-scale shift to dollar stores like dollar general.”

however, the middle- and high-income groups have begun to downgrade from mid- to high-end department stores to large discount retail supermarkets, and the financial reports of major supermarket chains are a good example.

mid- to high-end department stores macy's, kohl's and dillard's all reported year-on-year declines in comparable sales in their latest earnings reports. kohl's, which caters mainly to middle-income consumers, said its customers "felt the burden of a higher cost of living."

high-end department store chain nordstrom also said that its second-quarter comparable sales growth of 0.9% year-on-year was largely due to the 4.1% year-on-year sales growth of its discount chain nordstrom rack, which was mainly supported by high-income consumers.

as a representative of large-scale popular supermarkets, wall street journal previously mentioned that walmart's grocery prices are about 25% lower than traditional supermarkets. its second-quarter performance achieved "counter-cyclical growth", with both revenue and profit exceeding expectations, and it said that its market share among high-income families is increasing.

kohl's said it expects to be "more promotional" than ever before during the holiday quarter, given that more wealthy people are starting to "downgrade their consumption," while dollar general made it clear that it will offer more discounts in the coming quarters.