America’s biggest retailers cut prices as inflation hits shoppers

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Prices are falling on thousands of items at Target and Walmart, as results from U.S. retailers show weariness among some consumers after three years of high inflation.

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

The cuts by two of the largest general merchandise chains illustrate how retail prices are leveling off, if not falling, after years of increases buoyed by pandemic-era supply chain disruptions and a strong job market in USA. Persistent inflation has soured Americans’ mood in an election year: 71 percent of respondents to the latest FT-Michigan Ross poll said they believed economic conditions were negative.

Target, with nearly 2,000 stores in all US states, on Wednesday reported a 3.7 percent drop in same-store sales in its first quarter, reflecting declines in both the number and value of transactions. This followed an annual decline of 4.4 percent in the fourth quarter.

The Minnesota-based company this week said its new set of price cuts would apply to a variety of household staples, from a 5 percent discount on a pound of butter to 14 percent off Clorox-scented wipes. On Wednesday it predicted that the slide in same-store sales would end in the current quarter.

“We know consumers are feeling pressured to make the most of their budget,” said Rick Gomez, Target’s head of food, must-haves and beauty, in the release. Target did not respond to requests for comment ahead of the earnings release.

The following graph of average annual unit price change (%) showing consumer packaged goods inflation has returned to pre-pandemic levels

Target’s announcement came days after Walmart revealed an unusually large increase in its so-called throwbacks, which are discounts off the low prices the world’s largest retailer is known for, typically for about 90 days.

The number of food items receiving such awards rose 45 percent year-on-year in April. John Furner, chief executive of Walmart US, said stores now had almost 7,000 returns and he expected that would help its food sales for the rest of the year at a time when the price difference between eating out and preparing meals at home had expanded.

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

Its US business, which includes more than 5,200 stores, reported a 3.8 percent rise in comparable sales in the first quarter, which came entirely from an increase in transactions rather than prices. A big driver of demand came from households earning $100,000 or more, executives said.

Joe Feldman, an analyst at Telsey Advisory Group, said Target was probably motivated to keep pace with Walmart.

“What’s interesting is that it’s likely to expand into 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 retailing. Home appliance retailer Lowe’s on Tuesday reported a 4.1 percent drop in same-store sales during the first quarter as customers cut back on major renovation projects. Department store chain Macy’s reported that comparable sales fell 1.2 percent at the stores it owns.

While customers have benefited from strong wages and job growth, “inflationary pressures continue and they are feeling that edge,” Macy’s Chief Executive Tony Spring told analysts.

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

Rising prices had fueled growth in the sector, but US retail sales of $705 billion in April were essentially unchanged from March, while sales fell at general merchandise stores, the Census Bureau reported.

“I don’t think we’re going to see much in the way of wholesale pricing,” said Steve Zurek, vice president of pricing and promotion thought leadership at NIQ. But he said the outlook for prices was very different from two years ago: “It’s not going to be all up.”

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