A “low price” sign hangs on a shelf at a Target store in Miami, Florida, May 20, 2024.
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TargetThe company’s weak quarterly results highlighted why it has slashed prices on thousands of essentials: It’s struggling to convince bargain hunters.
The discounter is not alone.
Target’s first-quarter results released Wednesday not only show that U.S. consumers are more selective about spending in the face of sustained inflation that has weighed on their budgets for nearly three years. The company’s declining sales also illustrate how the battle for shoppers’ wallets has intensified as retailers — and even some restaurants — fight to compete on low prices.
Walmart said last week that its grocery “discounts,” meaning short-term deals on specific items, were up 45% year over year in April. The discounter also launched a new upscale grocery brand offering most items for less than $5.
Elsewhere, Aldi lowered prices earlier this month on more than 250 items, including chicken, steak, granola bars and frozen blueberries. And even McDonalds is launching a limited-time $5 meal in late June as some diners mock the price of fast food.
Target made the move Monday, saying it had already reduced prices on about 1,500 items and planned to reduce prices on thousands more this summer. Many of these products are staples such as milk, peanut butter, and diapers.
Several major grocery stores and restaurants reducing prices or offering deals could provide relief at checkouts at a time when consumer prices continue to climb more than 3% from last year. It could also give the Federal Reserve more confidence to cut interest rates. Still, lost revenue due to lower prices could force companies to cut elsewhere – potentially on labor costs.
Analysts on Target’s earnings call Wednesday asked questions about the timing and reasoning behind the price cuts and whether the retailer or its suppliers were footing the bill. The company declined to share details of the split, but Christina Hennington, chief growth officer, said Target’s suppliers knew the company was committed to passing savings on to its customers to drive traffic.
Some companies have retained customers even with the same or higher prices: Chipotle and Sweetgreen, for example, have weathered the consumer downturn.
Target against Walmart
Target’s earnings report revealed at least part of the reason the company is joining the race to lower prices. Sales of discretionary merchandise, like clothing, fell year over year. But so did sales of more frequent items like groceries and paper towels.
Some customers may make these purchases at Walmart instead. Transactions on Walmart’s website and stores increased 3.8% in the most recent quarter, and its online purchases soared 22% in the United States, the company said last week.
In an interview with CNBC, Walmart CFO John David Rainey said the retail giant is gaining share among higher-income households. He added that some consumers come to his stores for meals because of sticker shock at fast food chains.
“We have customers coming to us more frequently than before and newer customers that we haven’t traditionally had,” he said.
During Target’s earnings call, analysts asked tough questions about whether the retailer is losing ground with shoppers or is seen as overpriced, outside of sales events.
CEO Brian Cornell said Target is putting value at the forefront in its fight to return to growth.
“We want to make sure America knows that Target is a great place to shop and that we deliver great value every time you interact, whether in-store or through our digital channels,” he said. he said, adding that the company is on track to reverse declining sales in the second quarter.
When Target reduced its prices, customers noticed and responded, Hennington said on the earnings call. For example, she noticed that she didn’t have low-cost tech accessories that customers wanted, such as charging cables and phone cases, she said.
These items are now part of Dealworthy, a new private label launched in February that offers Target’s lowest prices on basic items like laundry detergent and paper plates.
“When we introduced the right price points in Dealworthy, customers noticed it immediately, which led to an acceleration of units and traffic in these categories and that’s what we do business by company,” a- she declared.
There will soon be a similar room with seasonal items, she said. After Target took a “close look at some of the most popular products from last year’s summer assortment,” customers can expect to see cheaper pool noodles, floats and coolers.
— CNBC’s Amelia Lucas contributed to this report.
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