Large-format Grocery & General Merchandise Retailer Stocks Q3 Earnings: Walmart (NYSE:WMT) Best of the Bunch

By Sarah Nassauer, Suzanne Kapner and Natasha Khan

Two different consumers are fueling this year's holiday-shopping season: high-end luxury shoppers and deal-hunters making everyday-spending trade-offs to keep the gifts flowing.

The myriad choices these more cautious shoppers are making help illuminate why spending is up but consumer confidence is dragging in the final stretch of the year. On Black Friday, the year's busiest shopping day, sales rose 4.1% compared with last year, Mastercard data show.

Even with holiday shopping off to a robust start, consumers — especially those from less-affluent households — are pulling back on routine purchases as they give priority to gifts and holiday meals. Sales on things that can wait, such as haircuts, pricier razors and fast-casual lunches, are slipping.

Spending on clothing, toys and seasonal items, on the other hand, is strong. And some of the biggest sales increases from last year are in luxury goods like clothing and accessories.

While upper- and middle-income customers continue to spend, those on the lower side "are having to make adjustments," Macy's Chief Executive Tony Spring said in an interview this week. "There is more of a waiting game that occurs for the best value and best promotion."

Nor is it just lower-income shoppers who are making trade-offs. Elisabeth June, a marketing executive in Tampa, Fla., said she and her four older siblings agreed to forgo gifts for each other this year, instead giving priority to the children in the family.

"Even though I don't feel the current strain," the 32-year-old said of gloomier consumer sentiment data and a recent wave of corporate layoffs, "I feel like I'm anticipating or worried about what may potentially happen."

Still, on Black Friday she splurged on items she deemed functional and great temporary deals, including Staub cast-iron cookware and McGee & Co. home decor she has long wanted. "They were on sale, and I knew they probably wouldn't be for forever," June said.

Online spending has been especially strong as holiday shoppers continue their steady, yearslong shift from bricks-and-mortar stores to e-commerce purchases. Online sales between Thanksgiving and this past Monday rose 7.7% compared with last year, according to Adobe Analytics data.

"Holiday shopping is an essential part of the budget," said Matthew Shay, president of the National Retail Federation. It's "an emotional purchase families plan for — families save for," he said. The NRF estimates overall holiday sales will grow between 3.7% and 4.2% compared with last year. More than half of the 3,000 consumers it surveyed over the Thanksgiving weekend said discounts and promotions drove most of their purchasing decisions.

Retailers say that appealing to shoppers' wish for value, fast shipping, trendy apparel or unique luxury goods have helped them deliver strong sales going into the year-end shopping season. Walmart, Ralph Lauren, Coach parent Tapestry, Gap, American Eagle and Macy's have all found ways to expand sales of late.

Deeper discounts this season have also driven shoppers to purchase higher-ticket items, such as sporting goods, and appliances, according to Adobe's data on e-commerce sales. Black Friday sales of luxury clothing and accessories rose 21% from last year, more than any other category, separate Salesforce data show.

Still, businesses that sell the goods and services that keep regular life humming — like hair cuts — are feeling the effects of consumers reining in spending elsewhere.

Chris Larkins, who operates 53 Regis Corp. Salons, including Supercuts, in Western states, said he has noticed clients going longer between haircuts amid nervousness about the economy.

They are saying, "I can do with my hair an inch longer," said Larkins. Meanwhile, the business has attracted new clients who previously spent more at higher-end salons for similar services, he said.

Madison Reed, a company that sells home hair color, as well as salon-coloring services, is seeing more people choose to color their hair at home, a less expensive option, said Amy Errett, the company's founder and chief executive. Meanwhile, sales of its Root Perfection product — which extends coloring by about three weeks — have grown by 30% this year. She attributes the trend to customers extending the time between appointments or full-on treatments.

Its membership has grown, in part because people want more affordable hair-coloring options, said Errett. "No matter what happens, she's going to color her hair," Errett said of the typical Madison Reed customer. But "she's looking for more value."

Some companies are starting to feel the effects of those consumer trade-offs. "We have seen some moderation in spending in the low-income cohort," John David Rainey, Walmart's chief financial officer, said recently.

Procter & Gamble, which makes Tide detergent, Bounty paper towels and Crest toothpaste, said this week it was seeing more caution from American consumers.

"I think the context in the U.S. is more volatile, probably the most volatile we've seen in a long time," Andre Schulten, P&G's chief financial officer, said. Across the consumer goods industries, some of P&G's product categories saw a significant drop in sales overall in October, which likely continued in November, he said.

Likewise, Signet Jewelers reported strong quarterly results this week but said it had seen softer foot traffic recently, particularly among its brands with more exposure to lower- and middle- income shoppers such as Zales and Banter by Piercing Pagoda. Among other economic pressures, consumers are also feeling the lingering effects of the government shutdown, Signet Chief Executive J.K. Symancyk told analysts Tuesday.

"Our consumers are dealing with a lot," he said.

Write to Sarah Nassauer at Sarah.Nassauer@wsj.com, Suzanne Kapner at suzanne.kapner@wsj.com and Natasha Khan at natasha.khan@wsj.com

By Evie Liu

Even affluent households are feeling the squeeze. Recent sales figures from dollar stores and Walmart show that Americans of all stripes are turning to discount retailers for everything from food to household items.

It's the latest sign of an affordability crisis in the country. The annual inflation rate was 3% in September, still above the Federal Reserve's 2% target rate. Over the past five years, the cost of food at home has increased by more than 25%. The cost of other basic needs — household items, utilities, transportation — has also surged.

According to the Urban Institute's affordability tracker, the average cost of groceries increased by 32% between 2019 and 2025, while the average household income rose by only 29%. That means poorer households are spending a larger share of their budget on essentials.

Roughly half of Americans said it's harder to afford groceries now than a year ago, according to a survey by Axios and the Harris Poll. Another survey by retail consulting firm Dunnhumby showed that 28.5% of American consumers reported reducing their meal sizes or skipping meals due to economic hardship.

Sales at dollar stores have soared over the past year. The discount retailers are appealing to both lower-income shoppers struggling with tight budgets and more affluent consumers trading down.

Dollar Tree's net sales rose by 9.4% year over year to $4.7 billion in the third quarter, the company reported on Wednesday. The chain opened 106 new stores during the quarter, while same-store sales improved by 4.2%. Operating income also increased by 3.8% to $343 million.

"Lower-income households are depending on us more than ever," CEO Mike Creedon said on the earnings call, noting that the average spend for lower-income households grew more than twice as fast in the third quarter as that for higher-income households.

More people are going to the chain. About three million more households shopped at Dollar Tree stores during the third quarter compared to last year, according to the firm. About 60% of those new shoppers were from households earning more than $100,000 per year.

"Today, we serve an increasingly broad spectrum of shoppers, from core value-focused households to middle- and higher-income shoppers who are making deliberate choices about how and where they spend," said Creedon.

Dollar General is seeing something similar. On Thursday, the retailer posted 4.6% year-over-year sales growth for the quarter ended in October. Management pointed to an increase in the total customer count, with disproportionate growth coming from higher-income households.

Likewise, Walmart — known for its value offerings — also reported positive transaction counts and growing market share in grocery and general merchandise. While the firm has seen moderation in spending among lower-income families, it said more affluent households contributed to growth.

"We continue to benefit from higher-income families choosing to shop with us more often," said CEO Douglas McMillon.

Stock returns have been solid for this group, too. Dollar Tree is up 51% this year, while Dollar General has soared 65%. Walmart is 27% higher.

Write to Evie Liu at evie.liu@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

By Josh Beckerman

Great Lakes Cheese recalled several shredded cheese products due to potential metal fragments from supplier raw material.

The Hiram, Ohio, company began the voluntary multistate recall in early October. On Monday, the Food and Drug Administration classified it as a Class II recall. According to the FDA's website, the Class II category is for a "a situation in which use of or exposure to a violative product may cause temporary or medically reversible adverse health consequences or where the probability of serious adverse health consequences is remote."

The recalled items include 235,789 cases of low-moisture part-skim mozzarella shredded cheese, under various brands such as Great Value, Good & Gather, Happy Farms by Aldi, Borden and Lucerne Dairy Farms. Other recalled products include smaller amounts of pizza-style cheese blends.

Write to Josh Beckerman at josh.beckerman@wsj.com