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CNN
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Retailers are feeling anxious. Consumers aren't shopping as much as they used to. In a game of chicken between stores and shoppers, stores appear to be the first to make concessions, cutting prices on thousands of items.
Over the past two years, prices have been cut as inflation has driven up prices and squeezed Americans, forcing them to choose between what they want and what they need.
This is a problem not just for individual shoppers and big retail chains, but for the entire American economy, which is about two-thirds of consumer spending.
In recent weeks, many retailers have announced price cuts in an effort to lure consumers into stores and encourage them to spend money on new clothing, home decor, art, and more. Crafts and hobby kits.
IKEA has reduced the prices of hundreds of products. In April, IKEA's 18-piece tableware set was reduced from $49.99 to $29.99, a bookcase with glass doors was reduced from $229 to $189, and a bed frame with storage and headboard was reduced from $549 to $499. .
This tells us that these are categories that are considered discretionary purchases. This means items that are nice to have but may not be everyday necessities in the same sense as food or medicine.
Sarah Wyeth, managing director of retail and consumer at S&P Global Ratings, said shoppers have been retreating in the past year because costs are 20% to 30% higher than a year ago and incomes can't keep up. said.
Because of this, consumers of various income levels are looking for deals.
“'Budget-conscious consumers' are no longer just low- and middle-income earners. The most significant decline in willingness to spend has come from higher-income groups, who were previously most vulnerable to economic downturns. The tier is now tightening,” said Chad Lusk, managing director at global consulting firm Alvarez & Marshalls. Consumer and Retail Groups. “Retailers should also consider targeted deals on more expensive discretionary items to increase purchase frequency.”
The result was a palpable sense of anxiety from the industry.
“Retailers have been anxious for quite some time,” Wyeth said. “It just leaves consumers with less money to spend.”
The challenge now for retailers is to shake consumers out of their frugal mindset.
“Overall retail sales aren't terrible, but they're not absolutely great either,” Zach Stamber, senior retail and e-commerce analyst at market research firm eMarketer, told CNN in an interview.
Retail sales rose 0.7% in March from the previous month, slower than the upwardly revised 0.9% increase in February, according to the latest government report. That beat the 0.4% increase expected by economists, according to a FactSet survey. This figure is adjusted for seasonal fluctuations, but not for inflation.
Retail spending rose in seven of the past 10 months through March. Spending during the period was mixed, driven by purchases of big-ticket items such as cars, strong online purchases and spending on services such as restaurants, travel and entertainment. But elsewhere, spending on furniture, clothing, sporting goods and electronics remains weak.
Mr. Stamber said companies want to change that.
Joe Radle/Getty Images
Customers shop at a Walmart Supercenter in Hallandale Beach, Florida on February 20, 2024.
“Many retailers say discretionary spending is slowing. People are buying essentials, lowering prices, and thinking that's it,” Stamber said. Said. “If you want consumers to spend money, you have to give them a reason to do so. Lower prices are a clear opportunity to drive people into stores and online.”
This is a lever that Walmart has been pulling forever, he said. Walmart said in December that grocery prices would be lower this year. “This is a very effective lever. It's a good marketing strategy to raise consumer awareness, get them into stores, and convince them to open their wallets and spend money,” Stamber said. “There is Value perception means that even if consumers continue to spend to some extent, value remains a top priority. ”
Jesper Brodin, CEO of Inka Group (the Dutch holding company for IKEA Retail), told CNN in March that IKEA is “lowering prices more than ever.”
“It's really not rocket science. We lower prices, especially in a time when people have less money in their pockets,” Brodin said. “The last six to eight months have definitely been the slowest we've ever seen.”
Michael's, an arts and crafts retailer with more than 1,300 stores nationwide, announced price reductions on 5,000 items in early April. Michaels CEO Ashley Buchanan said in a statement announcing the new discounts on April 18, “We are proud to offer exceptional value to all our customers looking to spend big.'' It’s more important than anything.”
Specifically, shoppers will see up to 15% off prices on frequently purchased items such as paints, markers and pens, the retailer said. Save up to 20% on adhesive, paper and sticker costs. Painting canvas is also up to 35% cheaper.
Clothing chain H&M also told analysts on its recent earnings call that it would cut prices. “We believe that at the end of this year, prices will be lower than they were at the beginning of this year,” H&M CEO Lars Daniel Elbert told analysts on a conference call in March.
Other companies competing for consumers' money are also taking advantage of their own price-cutting tactics.
Baby care product maker Frida announced in February that it had lowered the price of its flagship product, Nose Frida, from its original launch price of $17.99 in 2014 to $14.99, as well as other products.
Last week, restaurant and children's entertainment chain Chuck E. Cheese announced a so-called “budget-friendly” initiative to make entertainment more affordable for families. The company has announced that it will be reducing the price of games and offering 50% off food and drinks as part of its new summer discount promotion.
As retailers continue to look to increase sales, Stamber sees a wider range of ways to go beyond price reductions and take advantage of “highly customized offers within loyalty programs, limited-time special offers, etc.” I expect it to turn.
–CNN’s Brian Mena contributed to this report.
