U.S. Consumer Demand Outlook

RBC Capital Markets forecasts a gradual improvement in U.S. consumer demand throughout 2025, though overall growth is expected to remain subdued due to persistent inflation and cautious spending.

While household balance sheets are generally healthy, inflationary pressures and selective spending habits are creating a tough retail landscape. RBC suggests investors focus on companies poised to gain market share and leverage unique margins, highlighting Walmart (NYSE:WMT), Chewy (NYSE:CHWY), and Ollie’s Bargain Outlet as top picks. Price targets are set at $105 for Walmart (11% upside), $42 for Chewy (32% upside), and $120 for Ollie’s (20% upside).

RBC notes that U.S. consumers prioritize value, delaying large purchases and opting for private-label goods. Retailers have been slow to implement price cuts, showing a cautious approach toward inventory and margins.

The note states, “Excessive inflation and a lack of meaningful innovation have distorted value propositions, resulting in a very selective consumer.” However, wage growth and low unemployment continue to support consumer resilience.

Additionally, RBC highlights Walmart’s increasing reliance on advertising and membership income, which now constitutes about a third of its operating profit. This shift enables Walmart to maintain competitive pricing while enhancing margins, putting pressure on competitors to explore similar revenue opportunities.

Despite current challenges, RBC holds a cautiously optimistic view regarding gradual improvements in the consumer environment, attributed to easing inflation and sequential top-line growth, while anticipating that overall spending will lag behind consensus forecasts.