This article was written with the assistance of ChatGPT.

The news: US retailers are seeing a slowdown in sales of discretionary goods, such as apparel and electronics, as consumers increasingly focus on necessities such as groceries, according to recent reports.

• Macy's said sales fell by 4.6% in Q4 2022, and that it expected consumers to remain under pressure this year, causing spending on nonessential items to drop further. It also noted weakness across all income levels. To combat this, Macy's plans to expand its online marketplace by adding 2,000 brands in 2023, while simultaneously planning to shutter 125 locations over the next three years.
• Best Buy reported a similar trend, with US sales falling almost 10% due to soft spending on computers, phones, home theaters, and appliances. However, it noted growth from videogaming products and tablets.

The big picture: Looking beyond Macy’s and Best Buy, Walmart and Target both said during their earnings calls that food and beverage categories helped them increase sales as people spend more time at home.

• TJX Companies and Burlington Stores said they continued to post sales gains thanks to their value-oriented brands; both are also experiencing better-than-expected foot traffic.
• Kroger reported a 6.2% increase in same-store sales, boosted by a 10% rise in sales from its private label products.

Our take on Macy’s: Despite Macy's expectation of challenges in the coming year, with a projected net sales decline of 1% to 3% in the fiscal year, its better-than-expected Q4 results are encouraging, as they indicate that the retailer's efforts to make changes, including shifting its store mix away from malls, are starting to yield positive results.

• Macy’s effectively mined its credit card data to identify a shift in consumer spending patterns, helping the retailer avoid some of the inventory glut that has hurt many of its competitors’ bottom lines.
• The high end of the market isn’t impacted as much by economic uncertainty. The company’s Bloomingdale’s subsidiary grew its active customer base 5% as demand for luxury remained strong; high-end beauty remained robust, helping Blue Mercury grow its customer base 12% and sales by 7.2%.
• Macy’s is confidently pushing forward with its three-year ‘Polaris’ turnaround strategy, which is pushing it in the right direction. That reflects a challenging retail environment as we expect US retail sales growth to slow to 3.3% this year, down from 8.1% last year.
• Macy’s ecommerce growth of -1.5% this year will be far below the 10.0% growth the US ecommerce market should broadly experience.

Our take on Best Buy: Best Buy is one more in a long line of retailers that expect a challenging environment this year as consumers pull back on discretionary spending.

• Best Buy is in a challenging category. While we expect overall retail sales to grow 3.3% this year, we project the computer and consumer electronics category to grow just 2.5%.
• The category’s strong growth in 2021 (computer and consumer electronics grew 13.8% in 2021) produced difficult year-over-year comps last year, and has created a limited market for many of its products—most of which, like TVs, are only bought every four to 10 years.
• By keeping a tight lid on inventory throughout the year, the retailer avoided the inventory glut that plagued many other businesses and helped it project its margins somewhat and beat its bottom-line projections.