Walmart and Costco Stand Out as Retail Sector Faces Headwinds in 2026
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U.S. apparel and footwear retailers are bracing for a challenging first half of 2026, according to a new report from Moody’s. Despite a temporary reduction in tariffs on most imported goods to 10%, the sector is still grappling with weakened consumer spending and the lingering costs of clearing out inventory bought at higher prices.
Walmart, Moody’s notes, is emerging as the clear winner in the current climate. The retail giant has leaned into innovation that bolsters its value proposition and convenience, even drawing in higher-income shoppers seeking relief from rising prices elsewhere. “Walmart is the biggest winner in the U.S. right now,” analysts said, pointing to the company’s ability to capture traffic across income brackets.
Costco, meanwhile, benefits from a business model that insulates it from product cost volatility. Most of its earnings before interest and taxes come from membership fees, which Moody’s says “reduces its exposure to higher product costs.” Target, on the other hand, is still working through an operational turnaround and investing in its store experience.
Department stores, however, continue to lag, weighed down by their reliance on discretionary categories like home goods and apparel. Apparel, footwear, and accessories companies are also struggling with diminished demand, higher fuel costs, and the aftereffects of earlier tariff hikes. “Competition is stiff,” Moody’s said, “and consumers are looking for brands with clear, differentiated value propositions.”
Some names are bucking the trend. Ralph Lauren and Tapestry are performing well, thanks to strong marketing and international growth. But Nike is expected to keep sliding as its turnaround efforts prove more difficult than expected. Under Armour is also facing headwinds in its own restructuring, Moody’s added.
On the global front, Moody’s macroeconomic outlook assumes slow growth, with temporary credit disruptions tied to the Middle East conflict. The Iran war has pushed up energy prices and reduced fuel supplies, and while some of those increases may be temporary, “significant geopolitical risks still persist, even if the Middle East conflict subsides,” analysts warned.
In the U.S., higher-income earners are driving consumption, while lower- and middle-income households are feeling the squeeze from rising essentials costs. “Affordability remains a critical consideration, particularly for middle-income and lower-income consumers, and consumer confidence is waning amid high oil prices,” Moody’s said. “Households earning $65,000 to $135,000 annually, historically a major contributor to overall spending, have been unable to outrun inflation. A decline in wage income for the lowest earners has further reduced their spending power.”
Against this backdrop, the rise of e-commerce and AI-driven shopping tools could accelerate store closures. UBS analysts led by Michael Lasser predict more than 40,000 retail stores could shutter over the next five years, with department stores and specialty retailers facing the highest risk.
Industry Voices:
“Walmart and Costco are basically the only ones throwing a party while the rest of retail is in the kitchen crying,” said Linda Torres, a retail analyst based in Chicago. “Target’s trying to fix its image, but it’s like putting a Band-Aid on a broken leg. And Nike? They’ve lost their mojo—too many sneakers, not enough soul.”
“The tariff cut helps, but it’s not a magic wand,” said Marcus Chen, a supply chain consultant in New York. “Retailers still have to deal with the hangover from last year’s inventory glut. The winners are the ones who planned ahead.”
“I’m watching my wallet like a hawk,” said Sarah Jenkins, a mother of two in Ohio. “We used to shop at Target for everything, but now I’m comparing prices on everything. It’s exhausting.”