Bargain-hungry shoppers are picky about where they spend their holiday money

As the holiday shopping season begins, the fortunes of major retailers diverge. Target missed the mark while Walmart did – a difference due in part to bargain-hungry shoppers’ finicky appetite for non-essentials, analysts say.

“The key takeaway here is that the American consumer is still very value conscious and is increasingly shifting their money to Walmart from many other retailers, including Target,” said Brad Thomas, managing director of KeyBanc Capital Markets.

On Wednesday, Target cited “ongoing weakness in discretionary categories” as a key factor in disappointing third-quarter sales as many budget-conscious shoppers continue to focus on essentials. This is the latest sign that discounts will be the driving force this holiday season, as they have been for most of the year.

Customers still seem eager to reward other brands that double their value. Walmart reported better-than-expected earnings this week and gave a solid outlook for the holidays. In fact, non-grocery spending rose for the second quarter in a row, reversing a long series of declines. The parent company of TJ Maxx and Marshalls also said the holiday season is off to a “strong start,” noting that it offers shoppers a “destination for gifts at great prices.”

But even Walmart executives noted consumers’ continued caution. Chief Financial Officer John David Rainey told CNBC that many buyers hold off on making big purchases until they discover a compelling offer.

“We expect this holiday season to be very consistent with that,” he said. “They focus on price and value.”

Analysts say it is part of a steady return to normality in consumer spending after the Covid-era unrest that pushed prices to heights from which they are still falling.

“During the pandemic, people went out and bought a lot of stuff and then stopped buying stuff for a few years,” Thomas said. “We’re starting to get back to normal here.”

U.S. retail sales rose 0.4% overall in October, federal data showed last month, beating analysts’ forecasts. And the National Retail Federation, an industry trade group, expects “steady sales growth” to be between 2.5% and 3.5% above last season’s level. “The economy remains fundamentally healthy,” NRF President Matthew Shay said in a statement last month, adding that “households’ ability to spend continues to be supported by a strong labor market and wage growth.”

A consumer report released Wednesday by credit reporting agency TransUnion found that U.S. households’ inflation worries are easing, with 63% saying their finances are better or about where they planned, compared to 60% in the previous quarter.

Still, many said they remained concerned about being able to afford essentials. “The trip to the grocery store was somewhat daunting for consumers trying to make ends meet this quarter,” TransUnion researchers wrote.

There are signs that Target’s troubles may not be reflective of the retail industry as a whole. The company took part in the price-cutting campaign this year, announcing discounts on around 2,000 items just a few weeks ago – as part of a wider increase in value – but it still failed.

“A lot of this is down to the company simply not positioning itself well enough in a slightly more challenging market,” said Neil Saunders, managing director of retail consultancy GlobalData. That includes cutting staff, he said, and limiting the hours customers can use self-checkout lanes.

Some shoppers have complained that Target and other retailers are locking up more essentials like toothpaste and deodorant to deter theft. That has contributed to what Saunders called a “chaotic” situation that has led to some customers defecting to competitors who have also cut prices.

Discounts are indeed widespread and ongoing price competition is showing signs of slowing. If anything, the discount wars are getting a little hotter as major retailers’ price cuts steadily narrow the gap with Amazon, which continues to set the pace for bargains this holiday season, NBC News’ Holiday Price Check shows.

But while some big box stores are still seeing shoppers eager to snap up the non-essentials, others are announcing the opposite – suggesting that not all discretionary spending is created equal this season. When it comes to home renovations, Lowe’s and Home Depot, for example, saw higher sales from repairs related to Hurricanes Helene and Milton, but both expected full-year declines as customers postponed large projects.

Meanwhile, the steady expansion of e-commerce is likely to continue this holiday season. One of Target’s few bright spots in the quarter was its digital sales, which rose nearly 11% year-over-year. Walmart’s online sales were even stronger, rising 27% year-over-year. This trend is also evident in the hiring data: ZipRecruiter said in a report this week that there is a significant shift toward hiring in e-commerce, while traditional growth in retail jobs has been sluggish.

Analysts expect retailers will continue to focus over the holidays on ways to chase online shoppers, particularly younger customers who are among the fastest adopters of buy now, pay later installment loans — for both luxury purchases and Daily necessities.

“They are very adept at using these types of financial tools,” Saunders said, adding that he expects retailers to continue to “provide the services that this cohort wants.”

This article was originally published on NBCNews.com