Shoppers Seek Relief as Retailers Roll out Price Cuts

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To entice inflation-weary shoppers, major retailers are offering significant discounts for Memorial Day. Retail giants such as Target (NYSE:TGT) and Walmart (NYSE:WMT) are rolling out permanent and temporary price cuts, primarily on groceries, as inflation begins to ease slightly.

Recent earnings reports from Walmart (NYSE:WMT), Macy’s (NYSE:M), and Ralph Lauren (NYSE:RL) show no slowdown in consumer spending. However, CEOs from companies like McDonald’s (NYSE:MCD), Starbucks (NASDAQ:SBUX), and Home Depot (NYSE:HD) note that shoppers have become more price-conscious, delaying purchases, choosing 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 Reduced Prices?

Walmart(NYSE:WMT) has increased 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 more people eating at home and believes these discounts will sustain business throughout the year. CEO Doug McMillon emphasizes that Walmart will continue to prioritize lowering prices while maintaining 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 affect food, beverages, and household essentials, like Clorox wipes and Huggies Baby Wipes.

Aldi, a low-cost supermarket chain, has announced price cuts on 250 barbecue and picnic items, lasting through Labor Day. McDonald’s (NYSE:MCD) plans a limited-time $5 meal deal to counter slowing sales and high customer frustration over pricing.

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. Effective from May 15 to September 3, these deals 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%.

Are These Cuts Restoring Pre-Pandemic Prices?

Many retailers aim to ease shopper burden, 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, many retailers prioritize affordability.

Why Are Companies Cutting Prices on Some Items?

U.S. consumer confidence has declined for the third consecutive month, with Americans concerned about their immediate financial futures. As shoppers seek bargains, especially online, retailers aim 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, reflecting a growing preference for bargains.

How Are Retailers Financing Price Cuts?

Retailers are likely absorbing these price cuts through reduced profits, pressuring suppliers, or cutting expenses, according to Saunders. He believes retailers aren’t offsetting these cuts by raising prices on other items, which could invite customer backlash.

Target (NYSE:TGT) has integrated its summer price promotion into its projected profit range, though towards 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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