Biggest US retailers cut prices as inflation hits shoppers

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Prices are dropping for thousands of items at Target and Walmart, as US retailers’ results indicate fatigue among some consumers after three years of high inflation.

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

The cuts by two of the largest general merchandise chains illustrate how retail prices are levelling off, if not falling, after years of increases sustained by pandemic-era supply chain breakdowns and a sturdy US labour market. Persistent inflation has soured Americans’ mood in an election year: 71 per cent of those surveyed in 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 per cent drop in same-store sales in its first quarter, reflecting falls in both the number and value of transactions and marking a fourth consecutive quarter of decline.  

Shares of the Minnesota-based company closed 8.1 per cent lower after it reported earnings per share that slightly missed expectations.

The retailer this week said its new set of price cuts would apply to an array of household staples, from a 5 per cent reduction for a pound of butter to 14 per cent off Clorox scented wipes. On Wednesday it forecast 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 chief food, essentials and beauty officer, in the announcement. Target did not respond to requests for comment before its earnings release. 

Line chart of Average annual unit price change (%) showing Consumer packaged goods inflation has returned to pre-pandemic levels

Target’s announcement came days after Walmart disclosed an unusually large boost to its so-called rollbacks, which are discounts to the low prices for which the world’s largest retailer is known, typically for about 90 days.

The number of grocery items getting such price breaks rose 45 per cent year over year in April. John Furner, chief executive of Walmart US, said stores now had almost 7,000 rollbacks and he expected that this 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 widened. 

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 per cent increase in comparable sales in its first quarter, which came entirely from a rise in transactions rather than prices. A big driver of demand came from households making $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 it’s likely to expand to the rest of retail, given Walmart and Target set the tone on pricing,” he added. 

Signs of weakness have turned up in other corners of US retail. Home hardware retailer Lowe’s on Tuesday reported a 4.1 per cent decrease in same-store sales during the first quarter as customers cut back on big renovation projects. The department store chain Macy’s reported that comparable sales were down 1.2 per cent at the stores it owns. 

While customers have been benefiting from strong wage and job growth, “inflationary pressures persist, and they’re feeling that pinch”, Macy’s chief executive Tony Spring told analysts. 

The effects of inflation have compounded, even if the rate of change has slowed from two or three years ago, according to NIQ. Americans in 2024 have been spending a third more on consumer packaged goods than they were in 2019, the research company noted. 

Rising prices had been driving growth in the sector, but US retail sales of $705bn in April were in essence unchanged from March while sales declined at general merchandise stores, the Census Bureau reported.

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

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