June 3, 2024

Target recently reported earnings and they were disappointing, causing the stock to slide by 8%. The retailer isn’t alone. We can now add Target to the list of consumer-facing businesses like McDonald’s and Starbucks that have reported lackluster earnings lately.

These companies’ leaders blame inflation. And it could be a sticky problem.

Target also cut its outlook for the current quarter, indicating higher prices are straining consumer budgets. The increased cost of food and household items is the biggest concern Target heard from customers.

Perhaps that’s why the company plans to cut prices on 5,000 common items. Similar discount news is coming out of other companies, including Ikea, McDonald’s, Wendy’s, and more.

Main Street is now feeling the sting of interest rate hikes. Simply put, inflation is impacting people’s spending decisions today more than in the recent past. In turn, it’s now affecting corporations’ bottom lines.

For example, Starbucks foot traffic was down 6% last quarter. Its net income dropped 15% and sales projections were cut for the second time this year. Similarly, McDonald’s missed earnings expectations for the first time since 2021.

Add inflation to higher borrowing costs and current interest rates on credit cards, which more people are using to buy food, and there’s reason to believe the economy is weakening. In fact, many consumers are struggling just to put food on the table. Recent research showed 27.1% of adults reported taking on debt to pay for groceries.

It seems resilient American consumers have vanished. Instead, Americans are now increasingly picky and choosy, perhaps because they’re being beaten up by high inflation.