Retailers roll out summer deals for inflation-weary consumers. Here’s where.

Americans who spend Memorial Day searching for deals online and in physical stores might find even more reasons to cheer the arrival of sunny climes. Prominent retailers are escalating discounts as summer approaches, intent on persuading inflation-fatigued consumers to spend. Target, Walmart, and other chains have introduced price reductions — some lasting, others temporary — with the goal of providing their customers some respite. The markdowns primarily involve groceries and come at a time when inflation has shown initial signs of cooling this year, although not sufficiently for those grappling with covering essentials like rent and car insurance.

The most recent earnings reports from retailers Walmart, Macy’s, and Ralph Lauren reveal that shoppers continue to spend at their outlets. Yet, various CEOs, including leaders from McDonald’s, Starbucks, and home improvement chain Home Depot, have noted a drop in sales as individuals become more price-aware and selective.   

A January survey by consulting firm Revenue Management Solutions discovered that roughly 25% of those earning under $50,000 were curbing fast food expenditure due to cost concerns. “Retailers comprehend that unless they adjust their pricing strategies, retaining their customers will be challenging,” said Neil Saunders, managing director at consulting and data analysis firm GlobalData. “Consumers are tiring of inflation and are beginning to take measures concerning their shopping habits and purchasing volumes.”

Currently, businesses seem to be focusing on loyalty programs, discounts, and mobile apps to retain customer allegiance. However, McDonald’s CEO Chris Kempczinski acknowledged the effect of rising prices last month during an earnings call. “Consumers are becoming even more judicious with every dollar they spend due to higher prices in their daily expenditures, pressuring the industry,” Kempczinski stated. “[I]t’s crucial that we keep affordability as a priority for our customers.”

Home Depot‘s sales continued to weaken in the first quarter as Americans scaled back on major home renovation projects such as bathrooms and kitchens, impacting the company, said Saunders. Sales at the largest home improvement retailer in the nation dropped by 2.3% to $36.42 billion for the period ending April 28, slightly lower than the $36.65 billion analysts surveyed by Zacks Investment Research anticipated. This marked the third consecutive quarter of declining sales for the retailer, which had seen sales soar during the pandemic.

“Overall, Home Depot remains a robust business. The current challenges stem from a period of fluctuation in the consumer economy rather than any errors by the company. Nevertheless, we expect the upcoming year to be one of ongoing adjustments,” he added.

Price battle emerging While discounts are a regular tactic in retail, Saunders mentioned that these markdowns signal the onset of the first significant “price battle” since inflation began to rise. Higher-income shoppers aiming to save money have helped Walmart sustain solid sales in recent quarters. But earlier this month, the nation’s largest retailer expanded its price rollbacks — temporary discounts lasting several months — to nearly 7,000 grocery products, a 45% growth. Items include a 28-ounce can of Bush’s baked beans reduced to $2.22 from $2.48 and a 24-pack of 12-ounce Diet Coke priced at $12.78 from $14.28. Company officials stated the Bentonville, Arkansas-based retailer observed that more individuals are dining at home compared to eating out. Walmart believes its discounts will benefit the business throughout the rest of the year.

“We’re committed to leading on price, managing our (profit) margins, and maintaining the essence of Walmart,” CEO Doug McMillon conveyed to analysts earlier this month. Following suit, Target last week reduced prices on 1,500 products and announced plans to further lower prices on an additional 3,500 items this summer. The initiative largely covers food, beverages, and essential household goods, such as Clorox scented wipes previously priced at $5.79, now available for $4.99, and Huggies Baby Wipes, once $1.19, now 99 cents. Budget-friendly supermarket chain Aldi declared earlier this month it was cutting prices on 250 items, including popular barbecue and picnic supplies, as part of a promotion lasting through Labor Day.

Fast-food promotions

McDonald’s intends to launch a limited-time $5 meal deal in the U.S. next month to counteract dwindling sales and customer dissatisfaction with high prices. Burger King recently announced plans for its own $5 value promotion ahead of McDonald’s. Other fast-food eateries introducing new deals include Wendy’s, which recently unveiled a new breakfast combo of potatoes and an egg sandwich for $3. Arko Corp., a significant operator of convenience stores in rural areas and small towns, is launching its most assertive deals in about 20 years for both loyalty program members and other customers, according to Arie Kotler, the company’s chairman, president, and CEO. For instance, Arko loyalty members who purchase two 12-packs of Pepsi receive a free pizza. The promotions began on May 15 and are scheduled to end on September 3.

Kotler explained that he targeted essential items as families felt the cumulative impact of higher gas prices and inflation, resulting in customers visiting less often and reducing purchases over the past two quarters.

Other retailers

In the non-food sector, crafts retailer Michaels last month lowered prices on commonly bought products like paint, markers, and artist canvases. The reductions ranged from 15% up to 40% and are intended to be permanent. Many retailers stated their aim was to provide some relief for shoppers, but Michaels noted its new discounts reverted prices of certain items back to 2019 levels.

“Our goal with these reductions is to ensure we deliver value to our customers,” said The Michaels Companies. “We view it as an investment in customer loyalty above all.”

Target mentioned that comparing current reduced prices to a specific past period was challenging since inflation rates differ for each item, and the reductions varied by product. The retailer announced it’s cutting prices on 5,000 items this month, as consumers strive to stretch their budgets. Discounted items include fruits, milk, meat, peanut butter, pet food, paper towels, and more.

Food prices soar

The Bureau of Labor Statistics, which monitors consumer prices, reported the average price of a two-liter soda bottle in April was $2.27, compared to $1.53 the same month five years ago. A pound of white bread averaged $2 last month but was $1.29 in April 2019. One pound of ground chuck costing an average of $5.28 in April was $3.91 five years ago.

U.S. consumer confidence declined for the third consecutive month in April as Americans continued to worry about their short-term financial outlook, according to the latest report from the Conference Board, a business research organization released late last month.

With consumers concentrating more on bargains, especially online, retailers are striving to draw customers back to their physical stores. Target posted its fourth straight quarterly decline in comparable sales this month — encompassing stores or digital channels operating for at least 12 months.

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