Consumers facing inflation may opt for travel spending instead of shopping, warns Macy's.

• Macy's warns that rising inflation may force more consumers to make a crucial decision.
• Will they be spending on discretionary items we sell or on an airline ticket to Florida, travel, or dining out more, as stated by Macy CFO Adrian Mitchell?
• Some indications of a recession are evident, and the department store chain is not the only one facing this challenge.

As inflation poses a threat to consumer demand, particularly among low-to-middle-income consumers, more shoppers may have to make a difficult decision: either spend money at the mall or take a summer vacation.

During a presentation at J.P. Morgan's annual Retail Round-Up event, Macy's Chief Financial Officer Adrian Mitchell stated that the biggest challenge in managing the beginning of 2022 has been determining where the demand will come from.

He stated that the demand exists, but the question is whether consumers will spend on discretionary items sold by us or on travel, airfare to Florida, or dining out.

Macy's must plan carefully around the unpredictability created by those questions, Mitchell said. For instance, the retailer should avoid ordering too many beach cover-ups or suitcases if that's not what shoppers are going to splurge on during the summer.

The bond market has recently shown a classic recession indicator, with the 2-year Treasury yield rising above the 10-year note, as economists at Deutsche Bank predict that persistent inflation and regular interest rate hikes will likely lead to a recession in the U.S. in 2023.

Some Americans in lower-wage jobs may have to choose between a vacation or concert ticket or a new swimsuit or handbag due to the pressures spurring expectations.

According to a report, some early inflation trade-offs are already occurring, with consumers spending an average of 59% more at gas and convenience stores compared to the previous year, as indicated by the latest data from Numerator's Shopping Behavior Index.

According to the report, the largest declines in unit sales for discretionary categories such as home improvement and beauty are observed among low-and-middle-income tiers, while increases are most pronounced for the same income groups.

CEO Chip Bergh stated on CNBC on Wednesday that Levi's has not observed a decrease in demand for expensive denim goods due to inflationary pressures. However, Bergh noted that some consumers are beginning to use their savings accounts for additional funds, which Levi is closely monitoring. He emphasized that the company is not ignoring the trend.

While Macy's has not yet adjusted its 2022 financial forecast, which predicted sales to be flat to up 1% compared to the previous year, Levi was confident enough in its current business to reiterate its full-year outlook.

Macy's reported on Thursday that there has been a decrease in demand for certain home goods and casual apparel compared to the peak of the pandemic. However, the company stated that weddings are gaining popularity, which will increase sales of dresses, cosmetics, and men's tailored clothing.

Still, Mitchell stressed that Macy’s remains cautious.

Although the consumer is healthy, inflation is higher than expected, and supply chain disruptions persist.

The CEO of Nordstrom, Erik Nordstrom, stated that the health of the stock market tends to closely correlate with the performance of its business, while its typically affluent customer base doesn't tend to spend more or less amid gas price volatility.