Americans shopping for Memorial Day sales might find more reasons to celebrate as major retailers step up discounts for the summer, aiming to entice inflation-weary shoppers to spend.
Target (NYSE:TGT), Walmart (NYSE:WMT), and other chains have introduced price cuts—some permanent, others temporary—focused mainly on groceries. These reductions come as inflation shows signs of easing but remains a challenge for consumers struggling with basic necessities, rent, and car insurance.
Recent earnings reports from Walmart (NYSE:WMT), Macy’s (NYSE:M), and Ralph Lauren (NYSE:RL) indicate continued consumer spending, but CEOs from McDonald’s (NYSE:MCD), Starbucks (NASDAQ:SBUX), and Home Depot (NYSE:HD) note that shoppers are becoming more price-conscious, opting for store brands over pricier national brands, and actively seeking deals.
Neil Saunders from GlobalData remarked that retailers must lower prices to retain customers. He highlighted that consumers are reacting to inflation by changing their shopping habits, impacting where and how much they buy.
Where Shoppers Can Find Deals
Higher-income shoppers looking to save money have bolstered Walmart’s (NYSE:WMT) sales. Recently, Walmart expanded its temporary discounts to nearly 7,000 grocery items, including Bush’s baked beans and Diet Coke. The company is seeing more people eating at home, and it believes these discounts will sustain business throughout the year. CEO Doug McMillon emphasized Walmart’s commitment to leading on price and managing profit margins.
Target (NYSE:TGT) has also reduced prices on 1,500 items and plans to cut prices on another 3,500 products this summer, focusing on food, beverages, and household essentials like Clorox wipes and Huggies Baby Wipes.
Aldi announced price cuts on 250 items, including barbecue and picnic favorites, as part of a promotion running through Labor Day. McDonald’s (NYSE:MCD) plans a limited-time $5 meal deal next month to counter slowing sales and high prices.
Arko Corp. (NASDAQ:ARKO), a convenience store operator, is launching its most aggressive promotions in 20 years. For instance, loyalty program members who buy two 12-packs of Pepsi get a free pizza. These deals, running from May 15 to September 3, focus on essential items to support families amid rising gas prices and inflation.
In the non-food category, Michaels has permanently reduced prices on frequently purchased items like paint, markers, and canvases by 15% to 40%.
Price Cuts and Pre-Pandemic Levels
Retailers aim to provide relief, but Michaels noted its new discounts return some prices to 2019 levels. The company views these cuts as an investment in customer loyalty. Target (NYSE:TGT) explained that comparing current prices to a specific time frame is difficult due to varying inflation levels for different items.
According to the Bureau of Labor Statistics, the average price of a two-liter soda bottle in April was $2.27, up from $1.53 five years ago. Similarly, a pound of white bread cost $2 last month compared to $1.29 in April 2019, and a pound of ground chuck averaged $5.28, up from $3.91 five years ago.
Reasons Behind Price Cuts
U.S. consumer confidence has declined for the third straight month as Americans worry about their financial futures. With shoppers focusing on bargains, retailers aim to draw them back to stores. Target (NYSE:TGT) has reported its fourth consecutive quarterly decline in comparable sales.
Adobe Analytics data shows a significant shift toward cheaper online purchases across various categories from 2019 to 2023, indicating a growing preference for bargains.
Funding the Price Cuts
GlobalData’s Saunders suggests that retailers are subsidizing price cuts at the expense of profits, suppliers, or by reducing expenses. He believes raising prices on other items would risk customer backlash.
Target (NYSE:TGT) has incorporated its summer price promotion into its projected profit range, which is below 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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