Investing.com — RBC Capital Markets expects U.S. consumer demand to improve gradually throughout 2025 but predicts overall growth to remain muted as inflation persists and consumers remain cautious.
While household balance sheets appear healthy, inflationary pressures and selective spending patterns are shaping a challenging retail environment, RBC said in a note on Wednesday.
RBC Capital Markets recommends companies with opportunities to gain market share and unique margin levers, naming Walmart (NYSE:WMT), Chewy (NYSE:CHWY), and Ollie’s Bargain Outlet as its top picks. RBC set price targets of $105 for Walmart (11% upside), $42 for Chewy (32% upside), and $120 for Ollie’s (20% upside).
RBC noted that U.S. consumers are prioritizing value, deferring big-ticket purchases, and increasingly opting for private-label goods. Retailers and suppliers, meanwhile, have been slow to implement price cuts, reflecting a conservative approach to managing inventory and margins.
“Excessive inflation and a lack of meaningful innovation have distorted value propositions, resulting in a very selective consumer.,” the note said, adding that wage growth and low unemployment have helped sustain overall consumer resilience.
RBC also highlighted Walmart’s growing reliance on advertising and membership income, which now accounts for about a third of its operating profit.
This structural shift allows Walmart to maintain competitive pricing while expanding margins, creating pressure on rivals to develop similar revenue streams.
Despite challenges, RBC remains cautiously optimistic about gradual improvements in the consumer environment, driven by easing inflation and sequential top-line growth, but maintains a muted outlook for overall spending, with sales growth expected to lag consensus forecasts.