Consumers, in totality, are not pinching pennies. The data show that total consumer spending is rising, albeit at a slower pace than the initial surge of the early pandemic. The more interesting aspect is where people are spending their disposable income. Lower and medium consumers are being crushed by inflation, or softness in the job market but affluent consumers are still consuming primarily on discretionary products. The economy appears to be moving inconsistently, with certain sectors performing well and others slowly lagging behind. The type of bargain retail stock that is strong must not only provide value but also offer an engaging experience for the consumer. This is a tenet of my own design work. Costco is a perfect example. They can lock consumers in with a membership fee that generates solid, steady, and higher-margin revenue. This allows them to actually sell the product cheaper than the competition. Another company to watch is TJX Companies, the parent company of T.J. Maxx and Marshalls. Their off-price sale model is strong in that they buy and sell liquidated inventory, allowing them to keep their products' cost well below the competition. They have consistently new products, providing customers with changing and fresh consumer experiences, and that treasure hunt feel. I prefer these types of stocks as quality long-term investments, not short-term plays. It is true that performance is better in slower weeks, but there is a sound business model to begin with. Costco and TJX have demonstrated that they can operate favourably or unfavourably in any economy, simply because they provide consistent value. There is a history and defensibility in terms of customer acquisition to drive sales and customer retention, as well as a unique product offered at discounted prices. There is also a long-term perspective that should provide a competitive advantage.
Yes, consumers are definitely saving money. Inflation has eased from its peak, but wages have never reached anywhere near the the cumulative increased cost of living. Data from the most recent Census Bureau and NRF surveys show spending behavior moving toward value, identified by lower discretionary spending trends and traffic is going up for the discount and off-price (i.e., off-spring) retail stores. The logic is simple: consumers are still feeling economically cautious, even though technically they are employed. As for stocks, Burlington Stores (BURL) and TJX Companies (TJX) are top stocks in this space. Burlington's inventory guidance and "thinned down" inventory model enables stores to turn inventory quickly to entice deal seekers. TJX's global sourcing advantages allow for healthy margins while it competes heavily on price points. While short term demand is shaped by economic obstacle, both will gallup along for long-term pull. Their value and novelty "treasure hunt" or "experience" retail presents recurring customer value regardless of macro downturns or swings. As a long-term investor, that makes them enticing too - watch the valuations and margin sustainability as supply chain costs change; that statement goes for any retailer!
Consumers aren't just pinching pennies, they're squeezing every dollar until it screams. In my view, we're seeing defensive shopping where people trade down, not drop out. Even wealthy shoppers hunt bargains because paying full price feels foolish now. This behavior tends to stick even after economies improve. For stocks, TJX Companies owns the bargain retail throne with thousands of stores globally, making it the safest bet despite premium pricing. Burlington looks good to me as a growth story, as they're downsizing their stores while opening hundreds of new locations. Ross Stores offers pure value with aggressive expansion plans. These aren't short-term trades but permanent winners. The model thrives in any economy: tough times bring bargain hunters, good times bring treasure seekers who still want designer deals. Department stores keep dying while off-price keeps stealing their customers. The vendor relationships built over decades create a real moat that protects these businesses long-term.