“Only pickleball players can save you now, Dick’s,” chides Cassandra Cassidy at Morning Brew. Dick’s Sporting Goods stock had its worst day ever on the exchange yesterday as the S&P 500 closed lower, weighed down by declines in bank and retail shares.

A slew of impotence jokes followed—“Dick’s Shrinkage Slams Stocks!”—and Chief Financial Officer Navdeep Gupta quickly deferred: “This is not just a Dick’s Sporting Goods challenge. This is a collective retail challenge. For now, for the near term,” he conceded, “we do anticipate this will remain with us.”

The flash sell-off reveals a distressing trend toward a balance sheet recession in corporate markets, fueled mainly by mixed reads on discretionary spending.

Macy’s also reported shrinking sales across the board—in particular, the bedazzled department store company saw severe declines in categories like athleisure-wear and other casual vetements. Macy’s blamed the failures on broader financial pressure facing consumers and mounting debt levels.

This just a week after the Federal Reserve Bank of New York’s Center for Microeconomic Data slammed the vanilla envelope down in front of consumers with hard facts and scary numbers: its Quarterly Report on Household Debt and Credit shows credit card balances increased by $45 billion from $986 billion in Q1 2023 to a series high of $1.03 trillion in the Q2 2023.

1 trillion dollars of credit card debt across the nation. Let that sink in. An “empire of debt,” so to speak.

Why does all this matter?

A trillion dollars in credit card debt and floundering retail revenue numbers means that the American consumer is beginning to show signs of rollover.

Even while swiping their credit cards and kicking their debt cans down the road, the consumer is finding it harder and harder to support its spending habits. And if American consumers like to do anything, it’s to spend money.

Retailers will continue to have plenty to worry about as food prices remain high, interest rates rise and student loan payments return.

That said, there are some interesting winners amid all this balance-sheet recession talk. Aldi, for one, announced this week that it plans to acquire about 400 Winn-Dixie and Harveys Supermarket locations across, you guessed it, the Southern United States. “The way that consumers are shopping is changing quite dramatically,” says Jason Hart, the CEO of Aldi U.S. comments with remarkable foresight. He continues:

And obviously, there are alternative retail formats that are growing quicker than the traditional formats. We’re very proud to be one of those alternative formats that’s really disrupting the industry.

Consumers seem to be willing to try other ways to fill their grocery list, whether that’s through e-commerce, whether that’s through trying out discounters like Aldi, [and] trying out different products like private label. When consumers are seeing these changes, and seeing other retailers and other products meet their needs, they change their shopping habits.

Similarly, Target and Walmart, both known for catering to thriftier shoppers, are showing embattled outcomes.

Target missed Wall Street’s sales expectations for the fiscal second-quarter. Walmart beat Wall Street’s revenue estimates for the three-month period.

Target slashed its forecast for the year, while Walmart raised its outlook.

Some explanations for this dichotomy: For one, Walmart is the nation’s largest grocer. It makes more than half of its annual revenue from selling groceries—and people need to eat, even when times are tough.

In addition, the consumer is choosing to go cheap—and that’s revealing itself in their spending choices, what economists call “the substitution effect.”

Target’s chief growth officer, Christina Hennington, says trends in discretionary categories “remain soft overall.”

She pointed out some exceptions, including the popularity of a Taylor Swift vinyl and colorful Stanley tumblers designed by Chip and Joanna Gaines.

Maybe Taylor is the real inflation hedge.

So it goes,

Addison Wiggin
The Wiggin Sessions

P.S. “Wall Street added to the confusion with its own counterintuitive move,” writes CNBC. “After earnings reports, it snapped up Target’s stock on Wednesday and sold off Walmart’s shares on Thursday. The potentially surprising moves could reflect the companies’ recent stock performance, since shares of Walmart are up about 10% this year compared with Target shares’ decline of about 13% during the same period.”

This is why we’re focused on the real economy and tangible assets, instead of the fake market in stocks. Stock prices don’t often represent real growth.