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Walmart says inflation is helping it to attract more upper-income shoppers

LEILA FADEL, HOST:

Rising prices are forcing many families to adjust their weekly shopping habits. The cost of groceries, for example, has jumped more than 13% over the last year, which leaves less to spend on everything else. Retail giant Target announced this morning that its quarterly profit fell nearly 90% from a year ago. So it and big-box rival Walmart are tweaking their merchandise mix to better respond to customers' changing demands. NPR's Scott Horsley reports.

SCOTT HORSLEY, BYLINE: Walmart's sales in the most recent quarter were up more than 8% from a year ago, but the company's profits were down. Chief Financial Officer John David Rainey says customers have become more sensitive to rising food prices. They're increasingly filling their shopping carts with less expensive items.

JOHN DAVID RAINEY: As an example, instead of deli meats at higher price points, customers are increasing purchases of hot dogs as well as canned tuna or chicken.

HORSLEY: Cash-strapped shoppers are also opting for more private-label products rather than brand-name goods, and in some cases, they're having to get by with smaller package sizes. Walmart is a retail bellwether and a sign of how consumers overall are coping with high inflation. That's important because consumer spending is by far the biggest driver of the U.S. economy. Walmart says so far back-to-school sales have been strong, but customers are still wary of spending outside the grocery aisle. Rainey says that's forced Walmart to offer deeper discounts on other merchandise as it tries to unload unwanted inventory.

RAINEY: We've cleared most summer seasonal inventory, but we are still focused on reducing exposure to other areas such as electronics, home and sporting goods.

HORSLEY: Walmart's prospects have improved over the last month, though. The company now expects a smaller hit to profits than it was forecasting back in July. Falling gasoline prices are part of that. Gas prices have dropped more than a dollar a gallon from their record high in June. Walmart says it expects overall inflation to remain elevated for some time to come. The chain says that's helping it to attract more upper-income shoppers who are newly interested in finding bargains.

Scott Horsley, NPR News, Washington.

(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.

Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.