Retailers Adjust Strategies to Meet Financially Strained Consumers’ Needs

With ongoing financial strain causing many consumers to live paycheck to paycheck, retailers are adjusting strategies to cater to cost-conscious shoppers. As inflation pressures persist and savings dwindle, retailers are prioritizing value-driven offerings and digital infrastructure to spark increased customer engagement.

As inflation outpaces income growth, PYMNTS Intelligence data shows 67% of U.S. consumers are living paycheck to paycheck, prompting many to rely on buy now, pay later (BNPL) services for cash flow management. While BNPL loans show relatively low default rates, the average credit card debt of financially strained consumers has surpassed $7,000, indicating deeper financial stress. As consumers face mounting pressure, 57% sought financial advice in the past year, with more open to seeking guidance to better manage their finances amid rising costs and depleted savings.

As consumers continue to adjust, their cautious approach remains critical. According to the “New Reality Check: The Paycheck-to-Paycheck Report: Pessimism About Pay Rises Offsets the Effect of Falling Inflation,” 83% of consumers are at least somewhat concerned about current and near-future economic conditions.

Let’s look at four retailers trying to spark greater customer engagement in a challenging economic climate where many consumers are seeking value.

Kohl’s Focuses on Value-Driven Strategy

Kohl’s appointed Michaels Companies CEO Ashley Buchanan to succeed Tom Kingsbury, who stepped down Jan. 15. Last year Kingsbury said the company is reshaping its identity to feature its value-driven appeal for the entire family.

“We are evolving our marketing message to increase consideration of Kohl’s as a leading destination for value for the entire family,” Kingsbury explained. “Our advertising has already begun to include messaging around lower price points across our assortment.”

Kohl’s reported disappointing third-quarter sales, with a 9% decline in comparable sales due to weaknesses in apparel and footwear, despite growth in areas like Sephora and home decor. Company officials acknowledged recent changes in assortment, value strategies, and the in-store experience were intended for long-term competitiveness but had a negative short-term impact.

Key issues included reduced traffic, especially during the back-to-school season, and lower inventory in private apparel brands, which hindered sales of key value items. Company officials are focusing on increasing customer engagement through targeted offers, marketing, and leveraging its new Kohl’s Rewards members to stabilize sales and improve performance going forward.

Target Focuses on Loyalty, Digital

Target CEO Brian Cornell noted consumers are feeling the strain of rising costs, leading them to make more cautious purchasing decisions, prioritizing essentials and seeking deals. This behavior contributed to modest growth in Target’s third-quarter results, with a 0.3% increase in comparable sales, down from 2% in the previous quarter.

Despite these challenges, Target is focusing on long-term strategies, including investing in value and digital infrastructure, and leveraging its loyalty program, Target Circle, to drive engagement.

Customer loyalty and digital engagement are key for Target going forward, Cornell said.

“We focus on traffic as a key indicator of guest engagement,” he explained. “Traffic shows we’re winning with our guests. We’re going to play the long game. Even in a difficult third-quarter environment, one of the things we highlighted is the increase in traffic. We enrolled 3 million new Target Circle members this quarter. This program allows us to learn more about our guests and their preferences. We feel really good about the fact that consumers are choosing Target. We’re going to lean into our digital assets.”

Dollar General Sees Growth in Essentials

Similarly, Dollar General reported strong growth in essential categories, with a 1.3% increase in same-store sales during the third quarter, but saw declines in discretionary items. CEO Todd Vasos  highlighted the company’s efforts to improve customer experience through its “Back to Basics” initiative, elevating customer satisfaction and in-stock levels, while positioning Dollar General to better serve its value-seeking shoppers.

“Customers continue to face significant pressure and are less able to stretch their budgets at the end of the month and that’s having an impact on their shopping behavior,” Vasos said to analysts.

“We see this pressure in the timing of their shopping during the month and the mix of products they buy. When we stepped back and looked at our business through the eyes of the customer, we weren’t meeting that goal consistently across our chain. We laid out several important goals for the team to address these concerns. And I’m proud to note we have made substantial progress executing on these objectives and improving the overall customer experience.”

Five Below Refocuses on Core Market

Five Below is undergoing a strategic overhaul to refocus on its core customer base — preteens and teens — by returning to its roots of offering trend-right, high-quality products at extreme value. The company has faced challenges with its expanded product assortment and store growth, which diluted its initial value proposition.

With new leadership under CEO Winnie Park, Five Below is streamlining its operations, reducing product breadth, and focusing on delivering more value and excitement to its customers. The goal is to improve the shopping experience, optimize costs, and bring back the trend-driven, affordable items that have historically resonated with its shoppers.

“Over the past few years, we faced significant macro pressures, including stimulus-driven demand, supply chain disruptions, inflation, and evolving customer preferences,” Ken Bull, COO at Five Below, explained.

“To manage inflation’s impact, we raised prices and expanded price points. We also overexpanded our assortments and pursued an ambitious Triple-Double vision to triple our store count by 2030 and double EPS by 2025. In hindsight, this timeline was too aggressive, creating immense pressure on the organization. We increased corporate overhead, raised retail prices, tightened store labor, and faced added complexity from shrink mitigation efforts. To address these issues, we have a plan focusing on key areas across product, value and store experience.”

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