As Americans shop for Memorial Day deals, major retailers are offering significant discounts to entice inflation-weary consumers. Target (NYSE:TGT), Walmart (NYSE:WMT), and other chains have rolled out a mix of permanent and temporary price cuts, primarily on groceries. These reductions come as inflation shows signs of easing but still impacts consumers struggling with basic necessities, rent, and car insurance.
Recent earnings from Walmart (NYSE:WMT), Macy’s (NYSE:M), and Ralph Lauren (NYSE:RL) reveal continued consumer spending, but CEOs from McDonald’s (NYSE:MCD), Starbucks (NASDAQ:SBUX), and Home Depot (NYSE:HD) observe that shoppers are becoming more price-conscious, preferring store brands over more expensive national brands and seeking deals.
Neil Saunders of GlobalData noted that retailers must lower prices to retain customers who are reacting to inflation by changing their shopping habits. He emphasized that this year’s aggressive price cuts represent a significant strategic shift.
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 believes these discounts will sustain business throughout the year. CEO Doug McMillon reiterated Walmart’s commitment to leading on price and managing profit margins.
Target (NYSE:TGT) also reduced prices on 1,500 items and plans further cuts 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 for barbecues and picnics 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. 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%.
Do These Cuts Bring Prices Back to Pre-Pandemic Levels?
Many 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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