Retailers are feeling nervous. Consumers no longer shop the way they used to. In a game of chicken between stores and shoppers, it’s the stores that seem to give in first, dropping prices on thousands of products.
The cuts come as inflation has pushed prices higher over the past two years, putting Americans under pressure and forcing them to choose between their wants and needs.
This is a problem not just for individual shoppers or even large retail chains, but for the entire U.S. economy, about two-thirds of which comes from consumer spending.
In recent weeks, many retailers have announced price cuts as they work to lure consumers into stores and get them to spend money on things like new clothes, home decor for home and craft or hobby kits.
Ikea has slashed prices on hundreds of products. In April, an 18-piece dinner set at Ikea was marked down to $29.99 from $49.99, a glass-door bookcase now costs $189 from $229, and a bed frame with storage and headboard costs $499 versus $549.
It’s telling that these are categories considered discretionary purchases, that is, things that are nice to have but may not be daily necessities in the same way that groceries and medicines.
Shoppers have been falling back for a year now as costs have risen 20 to 30 percent from last year and revenue has failed to keep up, said Sarah Wyeth, general manager of retail and consumption at S&P Global Ratings.
This encourages consumers of all income levels to shop around for deals.
“The “budget-conscious consumer” is no longer limited to low- or middle-income earners. By far the sharpest decline in spending intentions is coming from higher-income groups, and those who were previously most immune to an economic downturn are now tightening their belts,” said Chad Lusk, managing director at the international consultancy Alvarez & Marshal’s. consumer and retail group. “Retailers should also consider targeted offers on higher-priced discretionary products, to increase purchase frequency.”
The end result was a palpable sense of anxiety on the part of the industry.
“Retailers have been nervous for quite a while,” Wyeth said. “Consumers simply have less money to spend.”
The challenge for retailers now is to get consumers out of this frugal mindset.
Juice sales
“Overall, retail sales haven’t been terrible, but they’re not absolutely great either,” said Zak Stambor, senior analyst, retail and e-commerce, at the research firm eMarketer, in an interview with CNN.
Retail sales rose 0.7% in March from the previous month, a slower pace than February’s upwardly revised 0.9% gain, according to the government’s latest report. That beats the 0.4% increase economists predicted, according to a FactSet poll. The figures are adjusted for seasonal variations but not for inflation.
Retail spending increased in seven of the past ten months through March. During this period, spending has been mixed, driven by purchases of big-ticket items such as cars, robust online shopping and spending on services such as restaurants, travel and entertainment. But elsewhere, spending on furniture, clothing, sporting goods and electronics remains low.
Businesses want to change that, Stambor said.
“Many retailers have said discretionary spending is slowing. People are buying basic necessities, they are also lowering prices and going out of business,” Stambor said. “If you want to convince consumers to spend, you have to give them a reason to do so. Lower prices present a clear opportunity to attract people to stores or online.
It’s a lever that Walmart, he said, has been pulling forever. Walmart said in December that food prices would drop this year. “It’s a very effective lever. This is a great marketing strategy to educate consumers, entice them to come into the store and convince them to open their wallets and spend,” Stambor said. “There is a perception of value, and value is top of mind for consumers, even as they continue to spend to some extent.”
Jesper Brodin, CEO of Ingka Group (the Dutch holding company for Ikea Retail) told CNN in March that Ikea was “cutting prices more than ever.”
“It’s not really complicated, we’re lowering our prices, especially when we’re in a time where people have less money in their pockets,” Brodin said. “The last six to eight months have definitely been slower than ever. »
Michaels, the arts and crafts destination with more than 1,300 stores nationwide, announced in early April that it was lowering prices on 5,000 products. “It’s more important than ever to deliver exceptional value to every customer looking to maximize their budget,” Michaels CEO Ashley Buchanan said in a statement announcing the new discounts on April 18.
Specifically, the retailer said shoppers will see prices of frequently purchased products like paint, markers and pens reduced by up to 15%; the cost of adhesives, papers and stickers reduced by up to 20%; and paint canvases up to 35% cheaper.
Clothing chain H&M told analysts during its latest earnings conference call that it would also cut prices. “At the end of this year, we believe we will have lower prices than at the beginning of this year,” H&M CEO Lars Daniel Ervér told analysts on a conference call in March.
Other companies competing to capture consumers’ money are embarking on this approach and carrying out price reductions themselves.
Frida, a manufacturer of child care products, announced in February that it had lowered the price of NoseFrida, its flagship product, to its original 2014 launch price of $14.99 from $17.99 and that he had reduced the prices of other products.
Last week, restaurant and children’s entertainment chain Chuck E. Cheese announced what it calls “cost-effective” efforts to make it a more affordable destination for families. The company announced that it is lowering game prices and offering 50% off food and drinks as part of a new summer discount promotion.
Stambor expects retailers will also look beyond price cuts and look to a wider range of levers to use “such as highly personalized offers within loyalty programs or specific duration offers Limited” in their continued quest to drive sales.
–CNN’s Bryan Mena contributed to this report.
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