Discretionary spending is recovering one category at a time

Something changed over the summer at BJ’s Wholesale Club. While customers continued to prioritize essential items such as groceries and cleaning supplies, an increasinging number also left the warehouse store with non-essential items such as apparel, home goods, and electronics.

Sales of general merchandise were up 1% in Q2, and now BJ’s is taking steps to make general merchandise more than just a last-minute addition to their shopping cart. “We know it’s important to our members,” CEO Bob Eddy told shareholders. ”Our job is to move it from an opportunistic business to one that generates trips by itself.”

The backdrop for BJ’s progress is that discretionary spending overall still trails non-discretionary, as higher prices and economic uncertainty give consumers pause. This pull back has been playing out for at least the past couple of years, but recent data and comments from retail executives suggest the category still has a way to go.

• A new survey from Deloitte found that estimated monthly spending intentions for discretionary purchases in August were down 18.6% from 2021, while non-discretionary spending was up 3.3%.
• Discounters Dollar General, Five Below, and Ross Stores all indicated in their Q2 earnings calls that discretionary spending will remain soft. “Our low to moderate income customers continue to face high cost on necessities, pressuring their discretionary spending,” Ross Stores CFO Adam Orvos said.

The upside is that some discretionary categories are beginning to bounce back, and not just at BJ’s. Survey data from KPMG shows that the majority of respondents expected to spend more on apparel, personal care, and home improvement products this fall than in 2023.

“Everything from apparel to travel to restaurants—all [are] showing positive increases in spend for the fall period, which I think bodes really well as we think about holidays,” Duleep Rodrigo, consumer and retail expert for KPMG, told Retail Brew.

But for now, the recovery appears limited to case by case success stories. Looking ahead, John Tomlinson, CPA and senior research analyst at M Science, said, ”The general theme is consumer discretionary will still be choppy, but it will really depend on who positions a product the right way and where consumers feel that they’re going to get the most value.”

Hitting the refresh button: This kind of alignment between consumer demand and a retailer’s strategy helped drive sales to discretionary categories at Best Buy. The combined sales of computers and tablets grew 6% YoY in Q2, and CEO Corie Barry acknowledged that a mix of push and pull factors were behind the gains. “With our market position, expert sales associates and compelling merchandising, we capitalized on demand, driven by our customers’ desire to replace or upgrade their products, combined with new innovation,” she said.

Experts have predicted that electronics sales could ramp up in 2024, as consumers who bought electronics during the pandemic looked to upgrade or replace their technology. But on the pull side of the equation, Best Buy also invested heavily over the past year in improving the merchandising presentation of its computing and tablets departments.

Beauty’s mixed bag: Target, meanwhile, highlighted a number of discretionary categories that saw improvement in Q2, including beauty, which saw a 9% jump in comp sales last quarter. Chief Commercial Officer Rick Gomez said the growth was “driven by a balanced combination of new offerings, celebrity brands, and seasonal relevance.”

“What we’re seeing in discretionary is when we offer on-trend stylish products at a great price, the consumer responds,” he added.

But these gains were not necessarily shared across the beauty category. Ulta, for example, had a rough summer, with comparable sales sinking 1.2% in Q2 and CEO Dave Kimbell telling investors that “consumer behavior is starting to shift as consumers increasingly focus on value and become more cautious with their spending.” Recent data from Circana also found that beauty sales at mass merchants were flat in the first half of 2024.

Home goods improvement: Target also called out home goods as a discretionary category that saw improvement, highlighting its kitchen category specifically. Urban Outfitters likewise celebrated a relative improvement in the category, noting that sales in its home business were shifting to low single-digit negative comparable sales.

Tomlinson said home furnishings were an example of a category that had the arguably modest distinction of being “less bad” in Q2.