3 Retail Stocks Most at Risk of the New Cautious Consumer Trend

Stocks to sell

With consumer spending trends tightening and the average U.S. wage stagnating, investors should watch out for retail stocks at risk of a plunge. According to Deloitte Insights, 73% of consumers are still relatively concerned about the rising costs of goods and services. There is a general uneasiness around inflation, the cost of rent and the expensive nature of groceries and necessities. 

Ultimately, this has driven consumers to reconsider what they spend their money on, which will undoubtedly impact the retail companies that sell non-essential items to the average person. Furthermore, this trend could also impact retailers who rely on a premium shopping experience to attract customers. In these cases, the retailer may upcharge on necessities to improve aesthetics and overall offerings. Thus, investors should keep an eye on the companies that no longer provide competitive value to average consumers.

Apple (AAPL)

Source: Vytautas Kielaitis / Shutterstock.com

Recent buybacks helped Apple’s (NASDAQ:AAPL) stock out of its most recent slump, but consumer reactions to its new iPad commercial could give clues about broader attitudes towards the company’s products. The ad shows a collection of instruments, machines, cameras and other things that creatives hold dear being crushed by a massive hydraulic press. Though the ad is undoubtedly creative, it’s genuinely uncomfortable to watch and received an unending wave of negative reactions on social media.

So what does this mean for Apple? Well, consumer backlash against an ad won’t do much. But it does show that people care less about the product and more about the message from a company. The message Apple used to deliver was one of unending innovation, with each product generation being so much better than the last that you just had to upgrade or miss out. 

Today, there’s little difference between Apple devices from year to year, which resulted in an 11% drop in Mac sales and a 15% drop in iPad sales last year. Time will tell if Apple will regain its sales momentum.

Best Buy (BBY)

Source: Ken Wolter / Shutterstock.com

Once renowned for its extensive selection of electronics and great customer service, Best Buy (NYSE:BBY) has struggled with many of its underperforming store locations. In fiscal year 2024, which ended Jan. 31, 2024, the company closed 24 of its locations while still managing to keep revenue growing thanks to the holiday shopping season. Now in its fiscal year 2025, the company expects to close another 10-15 locations. The reason? A lack of a compelling shopping experience.

Why would consumers, who are already hunting for the best deals, choose to shop at Best Buy? After all, with how competitive the online retail market has become, a traditional warehouse model like the kind Best Buy offers simply isn’t convenient. There are still some advantages to being able to go and see a device in person before buying it, but even Best Buy knows it needs to adapt. 

Now the company is pivoting towards a more modern and streamlined shopping experience while planning to discontinue many of its less profitable offerings. Yet, Best Buy could still be one of the retail stocks at risk until it finds its edge again.

Target (TGT)

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Often considered the more premium alternative to larger supermarkets, Target’s (NYSE:TGT) one-stop-shop model used to be incredibly competitive. Many shoppers swore by the company’s in-house brands while still having a vast array of brand-name products to choose from on its shelves. Furthermore, Target stores were known for being cleaner, safer and overall more attractive to shoppers of a higher socioeconomic standing.

However, due to rising retail theft in major U.S. urban centers such as New York, San Franciso, Seattle and Portland, the company had to shutter nine of its locations last year in October. This concerning trend is a result of the district attorneys within those cities choosing not to prosecute theft, emboldening criminals to steal and resell Target’s merchandise online.

Even worse for Target, consumers may choose to shop at its rivals like Walmart (NYSE:WMT) instead for more competitive prices in a time where the shopping experience matters less than saving money. This may ultimately place TGT among retail stocks at risk of a loss.

On the date of publication, Viktor Zarev did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Viktor Zarev is a scientist, researcher, and writer specializing in explaining the complex world of technology stocks through dedication to accuracy and understanding.

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