Financial Services Association, May 28 (Editor: Xiaoxiang) Although June has yet to officially enter, the full range of promotional advertisements related to “618” is believed to have made many Chinese consumers feel numb. And in the US, although American retailers have never had the habit of playing “618,” the traditional summer sales season has indeed begun.

Judging from various signs, this year's summer promotion seems to be particularly crazy under the “consumption downgrade” of the American people...

According to local media reports, if American consumers search for promotional information in online and offline stores during the Memorial Day holiday this Monday, they may “smile” — because after entering summer, major US retailers have increased their discounts, hoping to attract shoppers who are tired of high inflation to reopen their wallets.

Target, Walmart, and other chain stores have launched price reduction promotions — some of these price cuts are permanent and others are temporary, all aimed at relieving customers. These marked-down products mainly involve groceries, and they were also introduced when US inflation first showed signs of easing this year. Of course, for consumers who are still struggling to pay for basic necessities of life and soaring rent and car insurance expenses, the overall drop in prices is still far from enough.

Neil Saunders, managing director of consulting and data analysis firm GlobalData, said, “Retailers recognize that unless they take some steps in terms of pricing, it will be difficult for them to retain existing customers. Consumers have had enough of inflation—they're constantly 'downgrading' in terms of where they shop, how they shop, and how much they buy.”

Saunders added that although discounts are an everyday tool in the retail industry, these aggressive price reduction measures covering thousands of products announced by some retailers still represent a “major shift” in recent strategies. He pointed out that most companies have been talking about price increases for the past two or three years, and this price cut marks the first large-scale “price war” since inflation became popular.

Which US retailers are taking action?

High-income shoppers looking to save money have helped Walmart maintain strong sales results in recent quarters. But earlier this month, the nation's largest retailer expanded the scope of price pullbacks (temporary discounts that can last for several months) to nearly 7,000 grocery products, an increase of 45%. Among them: a 28-ounce can of Bush's baked bean sauce has now dropped from $2.48 to $2.22, while the price of a box (24 cans) of 12-ounce Diet Coke has dropped from $14.28 to $12.78.

Company executives said the Bentonville, Arkansas-based retail giant has discovered that more and more Americans are currently choosing to eat at home rather than eating out. Walmart believes the discount will help grow its business for the rest of the year.

Walmart CEO Doug McMillon told analysts earlier this month, “We will be leading the way in terms of price, and we will manage our profit margins.”

Target is no slouch either. It cut prices on 1,500 products last week, and said it plans to cut prices for 3,500 more products this summer. This initiative mainly applies to food, drinks, and household essentials. For example, Clorox aromatherapy wipes, which previously sold for $5.79, now cost $4.99; Huggies baby wipes, which were previously priced at $1.19, now cost 99 cents.

Low-cost supermarket chain Aldi also said earlier this month that as part of the promotion, the company will cut prices on 250 products, including those most commonly purchased during barbecues and picnics, and the promotion will continue until Labor Day (first Monday in September).

McDonald's, on the other hand, plans to launch a limited-time $5 “poor guy” package in the US next month to deal with slowing sales and customer dissatisfaction with high prices.

Arko is a large company that operates convenience stores in rural areas and small towns in the US. Arie Kotler, the company's chairman, president and CEO, said the company is launching its biggest promotion for members of its free membership program and other customers in about 20 years. For example, members of Arko's free loyalty program who buy two boxes of 12 cans of Pepsi will receive a free pizza. The promotion began on May 15 and will end in September.

Kotler said that after observing the combined effects of high oil prices and inflation in other fields, causing customers to spend less than a year ago, they are focusing on the prices of basic commodities people use to support their families. “Over the past two quarters, we've seen a trend of consumers cutting back on spending — consumers are visiting stores less often and buying fewer products.”

Dealing with the downturn in consumption

It is worth mentioning that behind the extensive summer promotions, much of what is reflected is the general background of the current downturn in US consumption.

The latest quarterly earnings reports released by Walmart, Macy's, and Raf Lauren show that consumers have not actually stopped spending. However, many business executives, including those responsible for McDonald's, Starbucks, and Home Depot, have noticed that people are becoming more price-conscious and pickier. They delayed the purchase of some products, focused their attention on everyday brands rather than well-known brands, which were usually more expensive, and were also looking for ways to find deals.

According to the latest report released at the end of the month by the American Business Research Institute Consultative Conference, the US consumer confidence index declined for the third month in a row in April as Americans continued to worry about their short-term financial prospects.

As shoppers pay more attention to bargains, particularly online specials, retailers are trying to keep customers coming back to their stores. Target's comparable sales this month declined for the fourth consecutive quarter. Comparable sales refer to sales from stores or digital channels that have been in operation for at least 12 months.

In fact, from April 2019 to April of this year, the share of online sales for those cheapest products increased in many categories, including clothing, groceries, personal care, and home appliances, according to Adobe Analytics data. Adobe Analytics covers more than 1 trillion visits to US retail websites.

For example, Adobe said 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.

Many retailers say their goal is to provide shoppers with some relief. Meanwhile, the new discounts have brought the prices of some products down to pre-pandemic levels in 2019.

Of course, for retailers, there are obviously some costs behind price reduction promotions. GlobalData's Saunders said he believes retail companies are subsidizing price cuts through various methods — sacrificing profits, putting pressure on suppliers and sellers, or reducing expenses. He pointed out that some retailers might take a “three-pronged approach.”

At the same time, Saunders doesn't think retailers will choose to raise the prices of other products to make up for their lower prices, because doing so will cause customer dissatisfaction.

Target currently declined to disclose details of the impact of the price reduction promotion on its performance, but said that its summer price promotion has been included in the company's estimated profit range, and the lower end of this profit range is lower than analysts' expectations.