June 15, 2024

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US retailers are cutting prices as shoppers show signs of inflation fatigue

US retailers are cutting prices as shoppers show signs of inflation fatigue

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Prices are falling for thousands of items at Target and Walmart, as results for U.S. retailers indicate fatigue among some consumers after three years of high inflation.

Target said this week it will cut prices this summer on 5,000 products ranging from milk to paper towels in an effort to stay competitive. Walmart told analysts last week that it had cut prices on a large number of grocery products.

The cuts by two of the largest general merchandise chains show how retail prices are stabilizing, if not falling, after years of increases sustained by pandemic-era supply chain collapse and a strong U.S. labor market. Persistent inflation has soured Americans in an election year: 71 percent of those surveyed in a recent Financial Times-Michigan Ross poll said they thought economic conditions were negative.

Target, which has nearly 2,000 stores in every U.S. state, warned of a 3 to 5 percent decline in same-store sales when it reports first-quarter results on Wednesday. That would come after a 4.4 percent year-over-year decline in the fourth quarter, which the Minnesota-based retailer said reflected a decline in the number and value of transactions.

The company said Monday that its new set of price cuts will apply to a range of household staples, from a 5 percent reduction per pound of butter to a 14 percent reduction in Clorox scented wipes.

“We know consumers are feeling pressure to make the most of their budget,” Rick Gomez, Target’s chief food, essentials and beauty officer, said in the announcement. Target did not respond to requests for comment before its earnings release.

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Target’s announcement came days after Walmart unveiled an unusually large push for so-called rollbacks, discounts on low prices for which the world’s largest retailer is known, typically for about 90 days.

The number of grocery items receiving such price cuts rose 45 percent year-over-year in April. Walmart U.S. CEO John Forner said stores now had nearly 7,000 walkouts, and he expected that would help food sales for the rest of the year at a time when the price difference between eating out and preparing meals at home has widened.

Customers are “responding to our price leadership,” Walmart CEO Doug McMillon told analysts.

Its US business, which has more than 5,200 stores, posted a 3.8 percent increase in like-for-like sales in the first quarter, which came entirely from an increase in transactions rather than prices. A big driver of demand came from households making $100,000 or more, executives said.

Target may have been eager to keep up with Walmart, said Joe Feldman, an analyst at Telsey Consulting Group.

“What’s interesting is that it’s likely to expand to the rest of retail, given that Walmart and Target set the tone for pricing,” he added.

Signs of weakness have emerged in other corners of US retail. Home appliance retailer Lowe’s on Tuesday reported a 4.1 percent decline in same-store sales during the first quarter as customers cut back on large renovation projects. Department store chain Macy’s reported that comparable sales fell 1.2 percent at its stores.

While customers are benefiting from strong wage and job growth, “inflationary pressures remain, and they are feeling that crunch,” Tony Spring, Macy’s CEO, told analysts.

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The effects of inflation have worsened, even if the rate of change has slowed from two or three years ago, according to NIQ. The research firm noted that Americans in 2024 spent one-third more on consumer packaged goods than they did in 2019.

The Census Bureau reported that rising prices were driving growth in the sector, but US retail sales of $705 billion in April were essentially unchanged from March, while sales at general merchandise stores declined.

“I don’t think we’re going to see a lot of declines in wholesale prices,” said Steve Zurek, vice president of thought leadership for pricing and merchandising at NIQ. But he said price expectations were vastly different from two years ago: “Not everything is going to go up.”