Key Walmart and Target data signals 'red flag' for US economy ahead of holiday season amid retail apocalypse

Major retailers are sending warning signs ahead of what is expected to be a so-so holiday season. 

This week, Target said it is expecting a muted holiday shopping season, rattling some investors in the retail industry. 

The company forecast Wednesday that sales during the final quarter of the year will be flat, and executives lowered its profit forecast from what it was last quarter.

This news sent Target's stock plummeting ahead of the crucial time for the retail sector.

Walmart, among other companies, has also reportedly brought in less holiday product for the upcoming season.

That is despite the company saying at its latest earnings call this week that it is well positioned and has 'momentum' ahead of the holidays.  

The retail giant clobbered Target in the latest quarter, posting 5.5 percent revenue growth, along with a 27 percent surge in global ecommerce sales. It also raised its financial forecast for the rest of the year. 

But experts warn that bringing in less product could be a red flag for the health of the US economy. It means big stores are cutting back on stock based on projections that inflation-weary Americans will buy less. 

Walmart's import volume of Christmas-themed products, including decorations and toys, has dropped sharply - from 1.9 million kilos in 2022 to around 340,000 kilos in the 12 months ending September 30. 

In 2023, its import volume was 980,000 kilos, according to trade data platform ImportYeti. 

This drop reflects a larger trend across the US, with overall imports of Christmas goods down by 22 percent compared to last year. 

Retailers appear to be bracing for softer consumer demand, with budget-conscious shoppers favoring essentials over holiday splurges. 

The National Retail Federation (NRF) has already predicted a modest 2.5 to 3.5 percent increase in holiday spending, the slowest growth since 2018. 

Walmart and other major retailers, like Dollar General, are exercising caution to avoid the inventory overload seen in recent holiday seasons - a situation that led to steep discounting and eroded profit margins. 

Walmart investor Sizemore Capital Management said Walmart routinely scrutinizes data on shoppers' spending patterns, including credit-card data. 

'They have done the research on their consumer. And what they have concluded is that the holiday season is not going to be as strong,' said Charles Sizemore, chief investment officer at the firm. 

Although the holiday-product import data does not count electronics, clothing or other general merchandise, what it shows 'is pretty obvious,' he added. 

'If Walmart is ordering less, they are expecting sales to be tepid.'

A Walmart spokesperson said the data 'only paints a partial picture of what we source due to the exclusion of data from marketplace, national brands, and domestic importer data for private brands, among other things.'

It comes after Gerald Storch, the former vice chairman of Target, predicted in October that retail is in for a tough couple of months ahead. 

'It's very clear that consumers are running out of money,' Storch told Fox Business.

'They're increasingly stressed by inflation and the exhaustion of their pandemic-era savings... they're spending less than the growth of inflation,' he added. 

Target, much more than its main competitor Walmart, relies on selling discretionary goods like home decor, electronics and clothing to make a profit. 

More than half of Target's merchandise is discretionary, CNN reported, and these are the exact items consumers are ditching in favor of groceries and everyday essentials.