Retailers raised prices and put pressure on consumers. Maybe they just blinked

New York
CNN
—

Retailers are feeling nervous. Consumers don’t shop like they used to. In the game of chicken between stores and shoppers, stores seem to generate revenue first, by lowering prices on thousands of products.

These cuts come at a time when inflation has driven up prices over the past two years, putting pressure on Americans and forcing them to choose between wants and needs.

This is a problem not just for individual shoppers or even large retail chains, but for the entire US economy, about two-thirds of which comes from consumer spending.

A slew of retailers have announced price cuts in recent weeks as they seek to lure consumers into stores and encourage them to spend money on things like new clothes, home decor items and art. Craft or hobby groups.

IKEA has reduced the prices of hundreds of products. In April, the price of an 18-piece dinnerware set at Ikea was marked down to $29.99 from $49.99, a bookcase with a glass door now costs $189 from $229, and a bed frame with storage and headboard costs $499 US after it was US$549.

Obviously, these categories are considered discretionary purchases, meaning things that are nice to have but maybe aren’t daily necessities in the same way as groceries and medicine.

Shoppers have been pulled back for a year now with costs 20% to 30% higher than they were a year ago, and with income failing to keep up, said Sarah Wyeth, managing director of retail and consumer at S&P Global Ratings.

This has consumers across income levels looking for deals.

“The ‘budget-conscious consumer’ is no longer just low- or middle-income people. The stark decline in spending intent is coming from higher-income groups, those that were previously the most vulnerable,” said Chad Lusk, managing director at global consulting firm Alvarez & Marshall. Against the economic downturn, they are now tightening their belts,” said the Consumer and Retail Group. “Retailers should consider targeted deals on higher-priced discretionary goods as well to increase the pace of purchasing.”

The end result was a palpable sense of unease from the industry.

“Retailers have been nervous for a long time,” Wyeth said. “There are fewer dollars for consumers to spend.”

The challenge for retailers now is to get consumers out of this frugal mindset.

“Retail sales in general “It wasn’t too bad, but it wasn’t exactly great either,” Zach Stambor, senior retail and e-commerce analyst at market research firm eMarketer, said in an interview with CNN.

Retail sales rose 0.7% in March Compared with the previous month, it is a slower pace than February’s upwardly revised gain of 0.9%, according to the latest government report. That’s more than the 0.4% increase economists expected, according to a FactSet poll. The figures have been adjusted for seasonal fluctuations but not inflation.

Retail spending increased in seven of the past 10 months through March. In that period, spending was mixed, supported by purchases of big-ticket items such as cars, strong online purchasing, and spending on essential goods. Services Such as restaurants, travel and entertainment. But elsewhere, spending on furniture, clothing, sporting goods and electronics remains weak.

Companies want to change that, Stambor said.

“A lot of retailers said discretionary spending is slowing down. People are buying basics, they’re trading at lower prices and then it’s over,” Stambor said. He said. “If you want to convince consumers to spend, you have to give them a reason to do so. Low prices are a clear opportunity to attract people in-store or online.

It’s a lever Walmart has pulled forever, he said. Walmart said in December That lower grocery prices will come this year. “It’s a very effective lever. It’s a great marketing strategy to educate consumers, get them into the store and convince them to open their wallets and spend,” Stapor said. The perception of value and value is very much at the forefront of consumers’ minds even as they continue to spend to some extent.

Jesper Brodin, CEO of Ingka Group (the Dutch holding company of Ikea Retail) He told CNN Last March, IKEA announced that it was “lowering prices more than ever.”

“It’s not really rocket science, we lower our prices, especially when we’re in times when people have less money in their pockets,” Brodin said. “The last six to eight months have certainly been slower than we’ve ever seen.”

Michaels, the arts and crafts destination with more than 1,300 stores nationwide, said in early April that it was cutting prices on 5,000 products. “It is more important than ever to provide exceptional value to every customer looking to stretch their dollar,” Ashley Buchanan, CEO of Michaels, said in a statement announcing the new discounts on April 18.

Specifically, the retailer said shoppers will see prices on frequently purchased products like paint, markers and pens drop by up to 15%; Reduce the cost of adhesives, papers and labels by up to 20%; And painting canvases at discounts of up to 35%.

Clothing chain H&M told analysts during its most recent earnings call that it would also cut prices. “At the end of this year, we believe we will have lower prices than we did at the beginning of this year,” H&M CEO Lars Daniel Erver told analysts during a call in March.

Other companies competing for consumers’ dollars are joining the market with their own price-cutting moves.

Frida, a maker of baby care products, announced in February that it had reduced the price of its flagship product, NoseFrida, to its original launch price in 2014 of $14.99 from $17.99 and reduced the prices of other products.

Last week, children’s entertainment and dining chain Chuck E. Cheese announced what it called a “budget-friendly” effort to make it an affordable destination for families. The company said it has reduced prices on games and offered a 50% discount on food and drinks as part of a new discounted summer promotion.

Stambor expects retailers will also look beyond price cuts to a wide range of levers to use “such as highly personalized offers within loyalty programs or limited-time offers” in their ongoing quest to boost sales.

CNN’s Brian Mina contributed to this report.