NEW YORK (AP) — Americans scouring online and stores for Memorial Day sales may find even more reason to celebrate the arrival of warmer weather as major retailers ramp up discounts for summer, encouraging inflation-weary shoppers to loosen their purse strings.
Target, Walmart and other chains have implemented price cuts, some permanent, others temporary, pledging to give customers some relief. The cuts, mostly on food, come as inflation shows signs of easing for the first time this year, but they aren't enough for consumers struggling to pay for basic goods, rent or auto insurance.
The latest quarterly earnings from Walmart, Macy's and Ralph Lauren highlighted that consumers haven't stopped spending. But several CEOs, including those of McDonald's, Starbucks and Home Depot, have noted that people are becoming more price-sensitive and picky: They're deferring purchases, focusing on private label brands over typically more expensive national brands and looking for bargains.
“Retailers are realizing that if they don't do something about pricing, they're going to have a harder time retaining their existing customers,” said Neil Saunders, managing director at GlobalData, a consulting and data analytics firm. “Consumers are really fed up with inflation and are starting to take action around where they shop, how they shop and how much they buy.”
While discounts are common in retail, Sanders said the bold price cuts announced by many retailers across thousands of items represent a “major shift” in their recent strategies. He noted that most companies have been talking about raising prices for the past two or three years, and the cuts mark the first major “price wars” since before inflation really took hold.
Where can shoppers find cheaper prices?
Walmart has seen strong sales in recent quarters thanks to a thrift-minded, higher-income demographic. But earlier this month, the nation's largest retailer expanded its price cuts — temporary cuts that can last for months — to about 7,000 grocery items, increasing them by 45 percent. Items included a 28-ounce can of Bush's baked beans, reduced from $2.48 to $2.22, and a 24-pack of 12-ounce Diet Coke, reduced from $14.28 to $12.78.
Bentonville, Arkansas-based Walmart Inc. is seeing more people eating at home rather than dining out, company executives said. Walmart believes the discounts will help its business for the rest of the year.
“We're going to lead on price, manage our margins and continue to be the Walmart you've always known,” Chief Executive Officer Doug McMillon told analysts earlier this month.
Not to be outdone by its closest rivals, Target announced last week that it had slashed prices on 1,500 items and plans to cut another 3,500 items this summer. The initiative applies mostly to food, beverages and household essentials. For example, Clorox scented wipes, which previously cost $5.79, are now on sale for $4.99. Huggies baby wipes, which used to cost $1.19, are now 99 cents.
Budget supermarket chain Aldi said earlier this month it would slash prices on 250 items, including barbecue and picnic favourites, as part of a promotion running through Labour Day.
McDonald's will introduce $5 meal sets in the United States for a limited time next month to counter sagging sales and customer frustration over rising prices.
Arco, a major operator of convenience stores in rural and small towns, has launched its first aggressive rewards in nearly 20 years for both its free loyalty program members and other customers, said Arie Kotler, chairman, president and CEO of the company. For example, Arco's free loyalty program members can get a free pizza when they buy two 12-packs of Pepsi. The promotion began May 15 and is set to end Sept. 3.
Kotler said he observed that customers were buying less than they were a year ago due to the cumulative effect of rising gasoline prices and inflation elsewhere, and he focused on essential items people use to feed their families.
“Over the past two quarters, we have seen a trend of consumers saving money, going shopping less frequently and buying less,” he said.
Beyond food, crafts chain Michaels last month cut prices on commonly purchased items like paints, markers and canvas by 15% to as much as 40%, and Michaels said the price cuts would be permanent.
Will these cuts bring prices back to pre-pandemic levels?
Many retailers said the aim was to give shoppers some peace of mind, but Michaels said the new discounts had brought prices of some products down to where they were in 2019.
“The goal of these reductions is to ensure we deliver value to our customers,” Michaels Companies said in a statement. “We see this above all as an investment in customer loyalty.”
Target said inflation rates vary by product and markdowns vary by item, making it difficult to compare current prices of discounted items to any specific period.
According to the Bureau of Labor Statistics, which tracks consumer prices, the average price of a 2-liter bottle of soda was $2.27 in April, down from $1.53 in the same month five years ago. A pound of white bread averaged $2 last month, compared with $1.29 in April 2019. A pound of ground beef averaged $5.28 in April, down from $3.91 five years ago.
Why do companies lower the prices of some products?
U.S. consumer confidence fell for a third straight month in April as Americans continue to worry about the short-term economic future, according to the latest report released late last month by the business research group The Conference Board.
Retailers are trying to lure customers back to stores as shoppers turn to bargains, especially online. Target said this month that same-store sales at stores or in digital channels that have been open for at least 12 months fell for the fourth consecutive quarter.
In fact, the share of online sales for the least expensive items in many categories, including clothing, groceries, personal care and electronics, increased from April 2019 to the same month this year, according to Adobe Analytics, which covers more than 1 trillion visits to U.S. retail sites.
For example, Adobe said the market share of the cheapest grocery items increased from 38% in April 2019 to 48% last month, while the share of the most expensive grocery items fell from 22% to 9% over the same period.
How do retailers fund price cuts?
Global Data's Sanders said companies would have to sacrifice profits, incur costs from suppliers and vendors, or By reducing expensesSome retailers may be using a combination of the three, he said.
Sanders doesn't think retailers will raise prices on other items to make up for the ones they cut, because that would lead to customer backlash.
Target declined to disclose details but said summer price-cutting promotions were built into the company's expected profit range, at the low end of which it would fall short of analysts' expectations.
GPM Investments, LLC, a wholly owned subsidiary of ARKO Corp., said its suppliers are funding the convenience store promotion.
