Walmart continues to win over shoppers as tariffs push up prices

Tariff-induced price hikes aren’t deterring customers from Walmart. In fact, they’re luring them.

As consumers grapple with price increases on groceries and household essentials, Walmart’s reputation for everyday bargains continues to draw shoppers of all income brackets away from its big box competitors.

“Our value proposition is resonating more strongly than it ever has,” chief financial officer John David Rainey said in the company’s earnings call Thursday.

Same-store sales for Walmart U.S. grew 4.6 % in the second quarter year-on-year, exceeding the company’s expectations. Its U.S. e-commerce businesses, which is popular among higher-income consumers thanks to its convenient pickups and fast delivery, surged 26 %.

Walmart’s successful quarter reinforces its continued dominance over competitors, namely Target. Target on Wednesday reported a much gloomier outlook amid struggles to draw in a savvier and more purposeful consumer, analysts say.

“Consumers, regardless of where their finances stand, are extremely aware of prices rising and are … seeking the best prices and deals possible,” said Melissa Minkow, global director of retail strategy at CI&T. “Walmart’s whole positioning rests on providing the lowest prices. Even when most items are evenly priced with Target, Target was perceived as more expensive by consumers.”

Target has been in a sales slump for the past few years. Comparable sales in its second quarter, including online and in-store, dropped 1.9 % year-on-year. Chief executive Brian Cornell told investors Wednesday he’s “far from satisfied with where our business is performing.”

By contrast, Walmart hasn’t noticed much pullback from its consumers. Even more price-sensitive shoppers aren’t meaningfully changing their behaviors, chief executive Doug McMillon said, as the impact of tariffs has been slow and gradual.

That’s starting to change now, he admitted, as pre-tariff inventories have emptied and are replenished with tariffed goods. Costs are going up every week, McMillon added, and will continue to rise in the third and fourth quarters.

To make up for the hit, retailers like Walmart tend to spread out the price increases, for example by adding margin to higher-priced goods like small kitchen appliances or apparel to offset higher wholesale costs on some grocery items, analysts said. The company has had about 7,400 price cuts across categories, about 27% more than the previous quarter, and it increased its rollback count in groceries by 30 % over last year, he added.

Meanwhile, higher earners are turning to the Bentonville, Arkansas-based chain to trade down on discretionary purchases, leading to five consecutive quarters of growth. This quarter, general merchandise sales grew in every segment, particularly in apparel, media and gaming and automotive, McMillon said. It has also seen success with Bettergoods, a store brand that features organic and “healthier” products.

TJX, which includes off-price chains Marshalls, TJ Maxx and HomeGoods, has also managed to thrive in the current economic environment, as consumers look to save on apparel, accessories and home decor. Net sales in the quarter jumped 7 % and same-store sales increased 4% year-on-year, exceeding the company’s expectations, the company reported Wednesday.

The chain has also expanded its gifting assortment and is attuned to what customers need and want, said Neil Saunders, a managing director of retail analytics firm GlobalData. This strategy paid off in its recent quarter, with customers turning away from department stores and Target and instead shopping at TJX during the back-to-school shopping season, he added.

“There is certainly a point to be made that TJX is making hay whilst other retailers are failing to get their harvests in,” Saunders wrote in an analyst note.

The customer experience at Target, however, has diminished, Saunders said, as shoppers face long wait times at the registers, inconsistent inventory and messy shelves.

“Target, which used to be very attuned to consumer demand, has lost its grip on delivering for the American shopper,” he wrote in his note.

The company has also been embroiled in culture wars for several years, starting with its decision to pull back its Pride Month merchandise. More recently, Target has faced blowback for its decision to end certain diversity, equity and inclusion programs. Activists organized an “economic blackout” in late February, encouraging consumers to avoid shopping at the store.

Target’s stock price sank about 6 % Wednesday, the day it released second-quarter earnings, and it’s down more than 30 % over the past year. That same day, the company announced chief financial officer Michael Fiddelke, a 20-year veteran, would take over as CEO in February. He succeeds Cornell, who has been in the role for more than a decade.