Walmart and Dwelling Depot are getting ready for a client slowdown

If you’re curious about what this year could be like for the retail industry, look no further than Walmartcautious outlook.

The discounter slightly topped expectations for the Christmas quarter on Tuesday, but gave a weaker-than-expected outlook for the year ahead. home depot issued a similar guide. The home improvement retailer, which also announced fiscal fourth-quarter results on Tuesday, said it plans flat same-store sales as stubborn inflation and rising interest rates prompt consumers to watch their spending.

Home Depot’s shares slipped Tuesday morning while Walmart’s shares were virtually flat, anticipating an emerging theme: consumers are becoming harder to win over.

At Walmart, that means shoppers are buying more everyday essentials like groceries and lightbulbs than expensive items or necessities like electronics and home decor. At Home Depot, that could mean customers delaying a home project or opting for cheaper floor tiles or kitchen appliances.

Richard McPhail, Home Depot’s chief financial officer, said inflation is influencing customer decisions.

“We’ve seen an increasing level of price sensitivity throughout the year, which has actually been something of a prediction given ongoing inflation,” McPhail told CNBC.

Walmart factored in challenging dynamics in its full-year guidance, said John David Rainey, the company’s CFO. These include the Federal Reserve’s rate hikes and lower consumer savings rates and shakier balance sheets.

“We’re in a situation similar to what we’ve been in for the past several years, where there are a lot of unknowns,” he said in an interview with CNBC.

The advantages of Walmart and Home Depot

Speaking to investors, Rainey called food inflation “the most persistent of all categories.” He said Walmart expects this shift away from higher-margin general merchandise and toward lower-margin categories like groceries “to get a little worse” in the coming months.

However, Walmart CEO Doug McMillon said at an investor call that the big retailer is in a fortunate position regardless of the economy. He said the store, which sells everything from toothpaste to furniture, is “of course hedged”.

“When customers want more of something and less of something else, we shift our inventory,” he said. “When the economy is strong, our customers have more money and that’s great. When things are tough, they come to us to make some money.”

It’s picked up customers of all income levels — including those making more than $100,000 — at Sam’s Club and Walmart’s SuperCenters, he said. Nearly 60% of annual sales come from groceries, a category that drives foot traffic and is recession-proof.

And, he said, if they shop at Walmart stores or try curbside pickup or delivery services, the company hopes it will “lead them to choose us, even if inflation eventually eases.”

Home Depot’s McPhail said the company’s customers are typically homeowners with stable jobs and healthier finances. Plus, he said, as mortgage rates rise, some choose to renovate their current homes rather than buy new ones.

Another dynamic that could work for Home Depot? It sells items that people consider necessary such as: B. Supplies to fix a broken water heater or a washer/dryer that a family may need to replace.

Other retailers are likely in a more difficult position. Many mall players, such as Macy’s And north current, trend towards commodities such as clothing, handbags and shoes. These two companies have already warned investors about their holiday earnings. The companies are expected to report fourth-quarter results next week.