As Americans spend Memorial Day scouting sales, major retailers are offering significant discounts to entice inflation-weary shoppers. Retail giants like Target (NYSE:TGT) and Walmart (NYSE:WMT) are rolling out a mix of permanent and temporary price cuts, primarily on groceries, to provide relief as inflation begins to ease slightly.
Recent earnings reports from Walmart (NYSE:WMT), Macy’s (NYSE:M), and Ralph Lauren (NYSE:RL) show that consumer spending hasn’t ceased. However, CEOs from companies such as McDonald’s (NYSE:MCD), Starbucks (NASDAQ:SBUX), and Home Depot (NYSE:HD)note that shoppers are becoming more price-conscious, delaying purchases, opting for store brands over national brands, and actively seeking deals.
Neil Saunders, managing director at GlobalData, explains that retailers must lower prices to retain customers, who are increasingly sensitive to inflation. He notes that the extensive price cuts across thousands of items signify a major shift from recent strategies where companies were more focused on price increases.
Where Can Shoppers Find Lower Prices?
Walmart(NYSE:WMT) has expanded its temporary discounts to nearly 7,000 grocery items, a 45% increase, including Bush’s baked beans and Diet Coke. The Bentonville, Arkansas-based retailer has observed a trend of more people eating at home and believes these discounts will sustain business throughout the year. CEO Doug McMillon emphasizes that Walmart will continue to lead on price while managing profit margins.
Target (NYSE:TGT) is also aggressively cutting prices, reducing costs on 1,500 items and planning further reductions on another 3,500 products this summer. These cuts mostly affect food, beverages, and household essentials, such as Clorox wipes and Huggies Baby Wipes.
Aldi, a low-cost supermarket chain, has announced price cuts on 250 items for barbecues and picnics, lasting through Labor Day. McDonald’s (NYSE:MCD) plans a limited-time $5 meal deal to counter slowing sales and high customer frustration over prices.
Arko Corp. (NASDAQ:ARKO), operating convenience stores in rural and small-town areas, is launching its most aggressive promotions in two decades. Their loyalty program members who purchase two 12-packs of Pepsi receive a free pizza. These deals, effective from May 15 to September 3, focus on essential items to support families.
In the non-food category, Michaels has permanently reduced prices on popular items like paint, markers, and canvases by 15% to 40%.
Do These Cuts Bring Prices Back to Pre-Pandemic Levels?
Many retailers aim to offer relief for shoppers, but Michaels has notably returned prices of some items to their 2019 levels. The company views these cuts as an investment in customer loyalty. Target (NYSE:TGT) highlights the difficulty of comparing current prices to specific time frames due to varying inflation levels for different items.
The Bureau of Labor Statistics reports that while some prices have significantly risen over the past five years, the goal of many retailers is to make products more affordable again.
Why Are Companies Cutting Prices on Some Items?
U.S. consumer confidence has declined for the third consecutive month, with Americans worried about their short-term financial futures. As shoppers turn to bargains, particularly online, retailers are eager to draw them back to physical stores. Target (NYSE:TGT) has experienced a fourth consecutive quarterly decline in comparable sales.
Adobe Analytics data shows a significant shift towards cheaper online purchases across various categories from 2019 to 2023, indicating a growing consumer preference for bargains.
How Are Retailers Funding Price Cuts?
According to Saunders, retailers are likely subsidizing price cuts by sacrificing profits, pressuring suppliers, or reducing expenses. He believes retailers are not offsetting these cuts by raising prices elsewhere, which would risk customer backlash.
Target (NYSE:TGT) has integrated its summer price promotion into its projected profit range, albeit at the lower end of analysts’ expectations. GPM Investments, a subsidiary of ARKO Corp. (NASDAQ:ARKO), reports that its suppliers are funding the convenience store promotions.
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