Americans who spend Memorial Day scouring sales online and in stores may find more reasons to celebrate the return of warmer weather. Major retailers are increasing discounts ahead of the summer months, hoping to entice inflation-weary shoppers to open their wallets.
Target, Walmart and other chains have implemented price cuts—some permanent, others temporary—with the stated goal of providing some relief to their customers. The reductions, which mainly affect food products, are being introduced as inflation showed its first signs easing this year, but not enough for consumers struggling to pay for essentials as well as rent and auto insurance.
Walmart’s latest quarterly earnings are Macy And Ralph Lauren stressed that consumers have not stopped spending. But several CE0s, including executives from McDonald’s, Starbucks and home improvement retailers, Home Depot, noticed that people are becoming more picky and picky. They delay shopping, focus on store brands versus typically more expensive national brands, and look for deals.
“Retailers are realizing that unless they ease up on some pricing restrictions, they will struggle to retain the customers they have gained,” said Neil Saunders, managing director at consultancy and analytics firm GlobalData. “Consumers are really fed up with inflation and are starting to take action on where they shop, how they shop and how much they buy.”
While discounting is an everyday tool in retail, Saunders said aggressive price cuts covering thousands of items announced by a number of retailers represented a “major shift” in recent strategy. He noted that most companies have been talking about price increases in the last two or three years, and the decline marks the first big “price war” since inflation began to take hold.
Where can buyers find lower prices?
Higher income shoppers looking to save money helped Walmart maintain strong sales in recent quarters. But earlier this month, the country’s largest retailer expanded price rollbacks — temporary discounts that can last several months — to nearly 7,000 grocery items, a 45% increase. Items include a 28-ounce can of Bush’s Baked Beans marked down to $2.22 from $2.48 and a 24-ounce package of Diet Coke marked down to $12.78 from $14.28.
Company executives said the Bentonville, Ark.-based retailer is accepting more people. eating at home compared to eating out. Walmart believes the discounts will help business through the end of the year.
“We’re going to lead on price, and we’re going to manage our (profit) margins, and we’re going to become the Walmart we’ve always been,” CEO Doug McMillon told analysts earlier this month.
Last week did not yield to its closest competitor Target reduce prices by 1500 items and said it plans to cut prices on another 3,500 vehicles this summer. The initiative primarily covers food, beverages and household essentials. For example, Clorox scented wipes that used to cost $5.79 are selling on shelves for $4.99. Huggies baby wipes that were $1.19 are now 99 cents.
Budget Aldi supermarket chain Earlier this month, the company said it was cutting prices on 250 products, including barbecue and picnic favorites, as part of a promotion that runs through Labor Day.
McDonald’s plans to introduce $5 limited time lunch US deal next month to counter slowing sales and customers disappointment in high prices.
Arko Corp., a major operator of convenience stores in rural areas and small towns, is launching its most aggressive deals in terms of depth in about 20 years for both members of its free loyalty program and other customers, according to Ari Kotler, chairman. President and CEO of the company. For example, members of Arko’s free loyalty program who purchase two 12-packs of Pepsi drinks receive a free pizza. Promotions began on May 15 and will end on September 3.
Kotler said he was focusing on the essentials people rely on to feed their families after noticing that the cumulative effect of higher gas prices and inflation in other regions had customers holding back compared to a year earlier.
“Over the last two quarters, we have seen a trend of reduced consumption, consumers coming in less frequently and consumers cutting back on their purchases,” he said.
In the non-food category, craft chain Michaels last month slashed prices on frequently purchased items such as paints, markers and artist canvases. Price reductions ranged from 15% to 40%. Michaels said the cuts will be permanent.
Will these cuts bring prices back to pre-crisis levels?
Many retailers said their goal was to offer some relief to customers. But Michaels said the new discounts have lowered prices on some items to 2019 levels.
“Our goal with these cuts is to ensure we deliver value to the customer,” Michaels said. “We see this as an investment in customer loyalty more than anything else.”
Target said it is difficult to compare the value of its discounted products now to a specific time period because inflation rates are different for each item and discounts vary by item.
The Bureau of Labor Statistics, which tracks consumer prices, reported the average price of a two-liter bottle of soda in April was $2.27. That compares to $1.53 for the same month five years ago. A pound of white bread cost an average of $2 last month, but in April 2019 it cost $1.29. Five years ago, one pound of ground bread, which averaged $5.28 in April, cost $3.91.
Why do companies reduce prices on some products?
US Consumer Confidence The situation worsened for the third month in a row in April as Americans continued to worry about their short-term financial future, according to the latest report released late last month by the business research group Conference Board.
As shoppers pay more attention to great deals, especially online, retailers are trying to bring shoppers back to their stores. Target this month reported its fourth straight quarterly decline in comparable sales — in stores or digital channels that have been open for at least 12 months.
In fact, according to Adobe Analytics, which covers more than 1 trillion visits to US retail sites.
For example, according to Adobe, the market share of the cheapest food products rose from 38% in April 2019 to 48% last month, while the share of the most expensive food products fell from 22% to 9% over the same period.
How do retailers finance price cuts?
GlobalData’s Saunders said he believes companies are subsidizing price reductions in a variety of ways – from profits, from suppliers and retailers, or by cutting costs. Some retailers may use a combination of all three, he said.
Saunders doesn’t think retailers are raising prices on other items to compensate for lower prices because that would cause a backlash from shoppers.
Target declined to provide details but said its summer price promotion was included in the company’s earnings forecast range, which falls below analysts’ expectations at the lower end.
GPM Investments LLCwholly owned subsidiary ARKO company. said its suppliers are funding promotions at convenience stores.