FX168 Financial News (North America) News On Memorial Day (Memorial Day), American consumers may find more reasons to celebrate warmer weather when looking for promotional products online and in physical stores. Major retailers are increasing summer discounts, hoping to entice inflation-stricken consumers to pay out of their pockets.
Target, Walmart, and other chains have introduced a number of permanent and temporary price cuts aimed at relieving customers of some of the financial pressure. At a time when inflation is showing signs of easing for the first time this year, these price cuts mainly concern groceries, but for consumers who have trouble paying for basic necessities of life, rent, and car insurance, the mitigation is still insufficient.
The latest quarterly earnings reports released by Walmart, Macy's, and Ralph Lauren show that consumers have not stopped spending. However, several CEOs, including McDonald's, Starbucks, and home improvement retailer Home Depot (Home Depot), say consumers have become more price-conscious and more picky. They're putting off purchases, focusing on store brands rather than the usually more expensive national brands, and looking for deals.
“Retailers recognize that it will be difficult for them to retain existing customers if they don't take some action on pricing,” said Neil Saunders, managing director of consulting and data analysis firm GlobalData. “Consumers have really had enough of inflation, and they're starting to act on where they shop, how they shop, and how much they buy.”
While discounts are an everyday tool in retail, Sanders said these aggressive price cuts, which cover thousands of products, represent a “major shift” in strategy recently. He pointed out that most companies have been talking about price increases in the past two or three years, and this price reduction marks the first “large-scale price war” since the beginning of inflation.
Where can consumers find lower prices?
High-income consumers want to save money, which has helped Walmart maintain strong sales in recent quarters. But at the beginning of this month, the nation's largest retailer rolled back (rollback) — temporary discounts that can last several months — to nearly 7,000 grocery products, an increase of 45%. Includes a 28-ounce can of Bush's baked beans falling from $2.48 to $2.22, and a 24-ounce can of 12-ounce Diet Coke falling from $14.28 to $12.78.
Company executives said Walmart, headquartered in Bentonville, Arkansas—has found that more people choose to eat at home rather than eat out. Walmart believes its discounts will help the business grow for the rest of the year.
“We will continue to lead in price and manage our (profit) profit margins, and we will continue to do what Walmart has always been,” CEO Doug McMillon (Doug McMillon) told analysts earlier this month.
In order not to be compared to its biggest competitor, Target cut prices on 1,500 products last week and said it plans to cut prices on another 3,500 products this summer. This plan mainly applies to food, beverages, and essential household items. For example, Clorox scented wipes, which previously cost $5.79, now cost $4.99. Huggies baby wipes, which previously cost $1.19, now cost 99 cents.
Low-cost supermarket chain Aldi said earlier this month that it would cut prices on 250 products, including common foods for barbecues and picnics, as part of a promotion that will run until Labor Day.
McDonald's plans to launch a limited-time $5 package in the US next month to deal with slowing sales and customer dissatisfaction with high prices.
Arko Corp. is a large operator that operates convenience stores in rural and small towns, and according to the company's chairman, president and CEO Arie Kotler (Arie Kotler), the company is launching the most aggressive offers for members of its free loyalty program and other customers in nearly 20 years. For example, members of Arko's free loyalty program can get a free pizza when they buy two 12-can boxes of Pepsi drinks. These promotions began on May 15 and are scheduled to end on September 3.
Kotler said that after observing the cumulative effects of rising oil prices and inflation in other sectors, he focused on household necessities and found that customers were more restrained than last year.
“Over the past two quarters, we've seen a trend where consumers cut costs, come in less, and buy less,” he said.
In the non-food category, handicraft chain Michaels last month lowered the prices of commonly purchased items such as paints, markers, and canvas. The price drop ranged from 15% to 40%. Michaels said these price cuts are permanent.
Can these price cuts bring prices back to pre-pandemic levels?
Many retailers say their goal is to provide consumers with some relief. But Michaels said its new discounts have brought the prices of some products down to 2019 levels.
“The purpose of our price reduction is to ensure that we provide value to our customers,” said Michaels. “We see this as an investment in customer loyalty.”
Target said that due to the different level of inflation for each product, the price reduction varies from product to product, making it difficult to compare the price of the product after the price reduction with a specific time period.
According to data from the US Bureau of Labor Statistics (Bureau of Labor Statistics), the average price of a two-liter soda in April was $2.27. Five years ago, the price for the same month was $1.53. The average price for a pound of white bread last month was $2, compared to $1.29 in April 2019. The average price of a pound of minced beef last month was $5.28, compared to $3.91 five years ago.
Why is the company cutting prices on some products?
According to the latest report released by the Business Research Group Conference Board (Conference Board) at the end of last month, US consumer confidence declined for the third month in a row as Americans continued to worry about their short-term financial prospects.
As consumers pay more attention to offers, particularly online shopping, retailers are working to bring customers back to physical stores. Target this month reported a fourth consecutive quarter of comparable sales declines — including sales from physical stores or digital channels that have been in operation for at least 12 months.
In fact, from April 2019 to the same month of this year, the share of online sales for the cheapest products in many categories, including clothing, groceries, personal care, and home appliances, increased, according to Adobe Analytics data, which covered more than 1 trillion visits to US retail sites.
For example, according to Adobe data, the market share of the cheapest groceries increased from 38% in April 2019 to 48% last month, while the share of the most expensive groceries fell from 22% to 9% during the same period.
How can retailers fund price cuts?
GlobalData's Sanders said he believes the company is subsidizing price cuts in various ways — at the cost of sacrificing profits, supplier and supplier costs, or reducing expenses. He said some retailers might be using a combination of the three.
Sanders believes that retailers will not make up for their lower product prices by raising the prices of other products because doing so would cause consumer disgust.
Target declined to give details, but said its summer price promotion was included in the company's expected profit range, which was lower than analysts' expectations at the low end.