Walmart's profit warning Monday raised the alarm for retailers, but subsidiary Sam's Club may be in better shape as inflation sends shoppers searching for value, gas perks, and free samples.
"We're seeing in the [Sam’s] Club channel that the traffic has been remarkably resilient," Jefferies Analyst Stephanie Wissink told Yahoo Finance Live (video above). "One of the strongest customer acquisition tools for them is gasoline. And when gas prices spike, that tends to be a net beneficiary to traffic to their pumps."
Those gas deals paid off in the first quarter: Sam's Club proved to be a bright spot in Walmart's earnings, touting 10.2% sales growth from the previous year. Over that time period, the price of gas increased from $3.41 per gallon at the beginning of the quarter to $4.14 per gallon, according to data from the Energy Information Administration (EIA).
"Regardless of what your consumer income profile looks like, we know that even the high-income [consumer] loves to find a way to value-hack the system," Wissink said, "and gas tends to be the way that the Club channel does that."
Consumers have been pinched by higher costs for necessities as elevated oil prices, disrupted supply chains, and greater operational expenses for businesses exacerbate inflation. All of the Consumer Price Index spending categories outpaced nominal wages, according to the Atlanta Fed's wage growth tracker.
Against this backdrop, wholesale retailers have been vying for new members by catering to consumers through cash-back on gas purchases, inflation-bucking hot dogs, rewards, curbside pick-up, and free shipping.
The dash for deals during economic uncertainty isn't atypical when compared to past cycles. Historical data from e-commerce platform Boxed found that during previous economic contractions customers actively sought out more value for their money.
"What a consumer did in prior downturns, they really kind of traded down or up," Chieh Huang, co-founder and CEO of Boxed, told Yahoo Finance in May. "They'll trade down to a dollar store. They'll trade down to a hard discounter. The folks who can afford it will actually trade up in quantity because if you're buying more, if you're buying in bulk, you're going to save a little bit of money."
Target CEO Brian Cornell was one of the first retail industry executives to publicly acknowledge that he was beginning to see customers trade down to private label products.
While consumers trading down in discretionary spending can signal a profit squeeze for big-box retailers, dollar store chains like Dollar Tree and Dollar General may experience increased volume. And as Huang mentioned, bulk buying poses a prospective boon to membership clubs such as Sam's Club, Costco, and BJ's Wholesale.
"Broadly, we would say [Sam's] Club is still an outlier to the positive," Wissink said. "Bulk-buying can actually be a way to save."
Brad Smith is an anchor at Yahoo Finance. Follow him on Twitter @thebradsmith.