It’s been a whirlwind few years for the U.S. retail sector. From pandemic-era booms to post-lockdown revenge spending, retailers have ridden every wave imaginable. But as we roll into mid-2025, the tide seems to be shifting again – and this time, consumer spending is showing signs of fatigue.
May’s retail sales data confirms what many on Wall Street have been whispering for weeks: the engine is losing steam. While total sales didn’t collapse, growth has clearly slowed, particularly in discretionary categories. Consumers, squeezed by lingering inflation and higher interest rates, are starting to make different choices – and not all retailers are equally equipped to adapt.
Cracks in the Spending Armor
According to the latest Commerce Department figures, U.S. retail sales for May rose just 0.1% from the previous month. That’s well below the 0.4% economists were expecting and a notable deceleration from April’s 0.3% gain. Once you strip out volatile categories like autos and gas, the core figures are even more sobering.
Department stores and home furnishing retailers saw outright declines, while clothing stores reported only modest gains. Meanwhile, food services and grocery stores held steady – signaling that consumers are continuing to spend on essentials but pulling back on extras.
This shift in behavior is being felt across earnings reports and stock charts. Some retailers are already flashing warning signs, while others appear better positioned to weather the storm.
Who’s Feeling the Pressure
One name that’s become emblematic of the current struggle is Best Buy . Shares of the electronics retailer have slid steadily in recent weeks, down more than 15% from their 2025 high. The company reported softer-than-expected Q1 revenue in May and issued cautious guidance, citing a slowdown in big-ticket purchases like laptops, TVs, and appliances. The logic is simple: in a more cautious consumer environment, those are the first items to get postponed.
Macy’s is another player feeling the pinch. The department store giant managed to beat earnings expectations in Q1 but did so largely through cost-cutting and better inventory management – not robust sales growth. Same-store sales declined year-over-year, and management flagged a weaker-than-hoped outlook for the back half of the year. The stock is off nearly 20% from its spring peak.
Perhaps most at risk are niche apparel and specialty retailers. Take Stitch Fix , the personal styling service that was once seen as a disruptor in the fashion space. The company continues to lose users and revenue, struggling to find its post-pandemic identity. With discretionary apparel spending under pressure, names like Stitch Fix have limited room to maneuver.
Who’s Holding Up
That said, not all retailers are suffering. In fact, some are quietly outperforming – and it’s worth taking note.
Walmart and Costco continue to benefit from the consumer pivot to essentials and value. Both companies reported solid same-store sales growth in their latest quarters, and membership-based models like Costco’s offer insulation from margin erosion. Walmart , in particular, has leaned into its grocery strength and private-label offerings, which appeal to budget-conscious shoppers.
Target , while more exposed to discretionary items than Walmart , has also shown resilience. The company recently unveiled new private-label brands aimed at affordability and continues to invest in digital fulfillment. It’s not immune to macro pressures, but its diversified revenue base gives it a better cushion than many peers.
One surprise winner? Dollar General . While the company has had operational challenges, its stock has bounced back sharply in recent weeks as analysts bet on increased foot traffic from price-sensitive consumers. If the economic slowdown becomes more pronounced, value-focused retailers like Dollar General could be the unexpected stars of the next chapter.
Market Reaction & Technical Takeaways
Retail stocks, as a group, have been underperforming broader indices. The SPDR S&P Retail ETF has lagged behind both the S&P 500 and Nasdaq, a reflection of both slowing earnings growth and sentiment turning cautious.
That said, the underperformance has also created some intriguing technical setups. Stocks like Lululemon and Nike are approaching key support levels that traders are watching closely. A bounce could attract short-term interest, but any breakdowns might trigger further selling pressure.
Short interest is also rising in several names – most notably Bed Bath & Beyond and Wayfair – suggesting that hedge funds and retail traders alike are bracing for more downside.
The Bigger Picture
The slowdown in retail isn’t happening in a vacuum. It’s part of a broader shift in the post-pandemic economy, where interest rates are higher, inflation remains sticky, and consumer sentiment is more cautious. Households are returning to more traditional budgeting behavior, prioritizing necessities over luxuries and deals over indulgence.
For investors, that means revisiting portfolio allocations. Chasing last year’s high flyers in discretionary retail could backfire in this environment. Instead, look for retailers with strong balance sheets, loyal customer bases, and pricing power. Companies that can lean into value, optimize supply chains, and maintain margin discipline are the ones likely to emerge stronger on the other side of this cycle.
Final Thoughts
Retail is often seen as the canary in the coal mine for the broader economy. When consumer spending slows, it raises bigger questions about GDP growth, earnings forecasts, and even Fed policy. May’s data isn’t a crisis – but it’s a warning. If trends continue into the summer, we could see more aggressive guidance cuts, renewed volatility in retail stocks, and potentially broader market consequences.
For now, watch the charts. Listen to earnings calls. And don’t underestimate the power of small data points in forecasting big shifts. Because when the shopper stops spending, the ripple effects travel fast.
And in 2025, it looks like the ripples have already started.
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