Highlights of Stifel’s most recent monthly consumer spending survey are: weakening discretionary spending intentions, continued favorable Wal-Mart Stores Inc. (NYSE:WMT) and Amazon.com, Inc. (NASDAQ:AMZN) spending intentions driven in part by price investments, data suggesting the longer-term impact on Costco from Amazon’s acquisition of Whole Foods could be less impactful than currently anticipated by COST shares, beauty spending remains favorable, and recruitment of Starbucks loyalty members is increasingly a watch-point. Overall the firm’s June survey is more favorable for shares of Estée Lauder Companies (EL, $94.84, Buy) and less favorable for Starbucks (SBUX, $57.60, Buy), with Costco (COST, $157.09, Buy) lacking near-term favorable catalysts despite solid fundamentals.
Net discretionary spending intentions are at the weakest level since early March 2016, with the decline corresponding to a recent weakening trend in the University of Michigan’s Consumer Sentiment Index. Discretionary spending intentions (consumers planning to increase minus those planning to decrease discretionary spending) declined for the fourth straight survey, down 13pts compared to the firm’s early May survey and 3pts y/y. The year-over-year decline consisted of a 10pt decrease in consumers planning on spending more, a 7pt decrease in consumers planning on spending less and a 16pt increase in consumers planning to spend about the same.
Shopping intentions at Walmart and Amazon are above historical levels, while Target shows year-over-year improvement. In the four-weeks through late June, 74% of consumers intend to shop at Walmart over the next month (inline y/y, 1pt above the six-month and one-year average intention), 62% intend to shop at Amazon (5pts above the six-month average intention), and 36% at Target (+4pts y/y, 1pt below the six-month and one-year average). Notably, 47% of consumers intend on shopping at both Amazon and Walmart (up 5pts compared to the firm’s late May survey), 18% of consumers intend on shopping at Amazon and Costco (up 4pts compared to late May), 16% at Costco and Walmart (up 4pts compared to late May), and 13% of consumers intend on shopping at Amazon, Walmart, and Costco (up 3pts compared to late May).
Of the 48% of consumers who said “Low Prices” is the most important aspect when deciding where to shop over the next month, 79% of them reported planning on shopping at Walmart (+1pt y/y). This compares to 56% at Amazon (question was not asked in previous surveys), 30% at Target (inline y/y), and 21% at Costco (+7pts y/y). Weak store traffic has resulted in retailers increasingly focusing on price to drive comparable store sales growth and is consistent with findings showing Walmart’s success in using price to gain share and increase leverage over suppliers, including Consumer Packaged Goods (CPG) companies.
According to READ, Costco and Amazon consumers have higher than average income levels and are twice as likely to spend more on discretionary items (29%) compared to total respondents (14%). Survey data indicates Costco shopping intentions have been largely unchanged in recent months, with consumers citing selection as the most important driver, above that for any other retailer, with convenience more relevant to Amazon. As a result, while the impact from Amazon’s acquisition of Whole Foods remains a significant watchpoint, the firm believes READ data suggests the longer-term impact could be less impactful than currently anticipated by COST shares.