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lite.cnn.com - on gopher - inofficial | |
ARTICLE VIEW: | |
Retailers jacked up prices and squeezed consumers. They might have just | |
blinked | |
By Parija Kavilanz, CNN | |
Updated: | |
9:26 PM EDT, Sun May 5, 2024 | |
Source: CNN | |
Retailers are feeling jittery. Consumers aren’t shopping like they | |
used to. In a game of chicken between stores and shoppers, it’s the | |
stores that appear to be yielding first, by dropping prices on | |
thousands of products. | |
The markdowns come as inflation has pushed prices higher for the past | |
two years, squeezing Americans and forcing them to choose between wants | |
and needs. | |
That’s a problem not just for individual shoppers or even big retail | |
chains but for the whole American economy, of which about two-thirds | |
comes from consumer spending. | |
A slew of retailers in recent weeks have announced price cuts as they | |
strive to pull consumers into stores and entice them to spend money on | |
things like new clothes, decorative items for the home and arts and | |
crafts or hobby kits. | |
Ikea has slashed prices on hundred of products. In April, an 18-piece | |
dinnerware set at Ikea was marked down to $29.99 down from $49.99, a | |
glass door bookcase now costs $189 down from $229 and a bedframe with | |
storage and headboard costs $499 down from $549. | |
It’s telling that these are categories considered to be discretionary | |
purchases, meaning things that are nice to have but maybe aren’t | |
everyday necessities in the same vein as groceries and medicine. | |
Shoppers have pulled back for a year now as costs have risen 20% to | |
30% higher than they were three years ago and as incomes failed to | |
keep up, said Sarah Wyeth, managing director, retail and consumer with | |
S&P Global Ratings. | |
This is making consumers across income levels look for deals. | |
“The ‘budget conscious consumer’ is no longer just low- or | |
middle-income earners. By far the starkest decrease in intent to spend | |
is coming from the higher-income groups, and those that were previously | |
the most immune to an economic downturn are now tightening their | |
belts,” said Chad Lusk, managing director in global consultancy firm | |
Alvarez & Marshal’s consumer and retail group. “Retailers should be | |
thinking about targeted deals on higher-priced discretionary | |
merchandise, too, to increase buying frequency.” | |
The end result has been a palpable sense of anxiety from the industry. | |
“Retailers have been nervous for quite a while,” Wyeth said. | |
“There’s just less dollars for consumers to spend.” | |
The challenge for retailers now is to shake consumers out of that | |
frugal mindset. | |
Juicing sales | |
“ haven’t been terrible, but they’re not also absolutely | |
great,” said Zak Stambor, senior analyst, retail and ecommerce, with | |
market research firm eMarketer in an interview with CNN. | |
Retail sales rose 0.7% from the prior month, a slower pace than | |
February’s upwardly revised 0.9% gain, according to the latest | |
government report. That beat the 0.4% increase that economists | |
projected, according to a FactSet poll. The figures are adjusted for | |
seasonal swings but not inflation. | |
Retail spending has increased in seven of the past 10 months through | |
March. In that period, spending has been a mixed bag, boosted by | |
purchases of high-ticket items such as cars, robust online buying and | |
spending onsuch as restaurants, travel and entertainment. But | |
elsewhere, spending on furniture, clothing, sporting goods and | |
electronics remains weak. | |
Businesses want to change that, Stambor said. | |
“A lot of retailers have said that discretionary spending is slowing. | |
People are buying essentials, they’re also trading down in prices and | |
then calling it a day,” Stambor said. “If you want to convince | |
consumers to spend you have to give them a reason to do so. Lower | |
prices are a clear opportunity to drive people into the store or | |
online.” | |
It’s a lever that Walmart, he said, has pulled forever. that lower | |
grocery prices will be coming this year. “It’s a very effective | |
lever. It’s a great marketing strategy to get consumers’ awareness, | |
get them into the store and convince them to open their wallets and | |
spend,” said Stambor. “There is the perception of value, and value | |
is very much front of mind for consumers even when as they continue to | |
spend to some extent.” | |
Jesper Brodin, CEO of Ingka Group (Ikea Retail’s Dutch holding | |
company) in March that Ikea is “lowering prices more than it has ever | |
done.” | |
“This is not rocket science really, we lower our prices, in | |
particular when we are in times when people have less money in their | |
pockets,” Brodin said. “The last six to eight months definitely | |
have been slower than we have ever seen.” | |
Michaels, the arts and crafts destination with more than 1,300 stores | |
nationwide, in early April said it was dropping prices on 5,000 | |
products. “It’s more important than ever to deliver exceptional | |
value for every customer looking to stretch their dollar,” Ashley | |
Buchanan, CEO at Michaels, said in a statement announcing the new | |
discounts on April 18. | |
Specifically, the retailer said shoppers would see prices of frequently | |
bought products like paint, markers and pens slashed by up to 15%; the | |
cost of adhesive, papers and stickers cut by up to 20%; and painting | |
canvases up to to 35% cheaper. | |
Clothing chain H&M told analysts during its most recent earnings call | |
that it, too, would lower prices. “At the end of this year, we | |
believe we’ll have lower prices than where we were at the beginning | |
of this year,” H&M CEO Lars Daniel Ervér told analysts during the | |
call in March. | |
Other businesses competing for consumers’ dollars are jumping on | |
board with price-cutting moves of their own. | |
Frida, a maker of babycare products, in February announced it had | |
dropped the price of the NoseFrida, its flagship product, to its | |
original 2014 launch price of $14.99 from $17.99 and reduced prices on | |
other products. | |
Last week, restaurant and kids’ entertainment chain Chuck E. Cheese | |
announced what it called “budget-friendly” efforts to make it a | |
more affordable destination for families. The company said it was | |
lowering prices of games and offering 50% off on foods and drinks as | |
part of a new discounted summer promotion. | |
Stambor expects retailers will also look beyond price cuts to a wider | |
array of levers to use “such as highly-tailored offers within loyalty | |
programs or limited-time specific offers” in their continued quest to | |
boost sales. | |
–CNN’s Bryan Mena contributed to this report. | |
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