Retailers raised prices and put pressure on consumers. They might have just blinked

Retailers are nervous. Consumers are not shopping like they used to. In a game of chicken between stores and buyers, it is the stores that seem to be giving in first, by lowering the prices of thousands of products.

The reductions come at a time when inflation has driven up prices over the past two years, overwhelming Americans and forcing them to choose between wants and needs.

This is a problem not just for individual consumers or even large retail chains, but for the entire American economy, about two-thirds of which comes from consumer spending.

In recent weeks, a number of retailers have announced price reductions as they strive to attract consumers to stores and encourage them to spend money on things like new clothes, home decor items, and arts and crafts or hobby kits. .

Ikea has reduced prices on hundreds of products. In April, an 18-piece dinnerware set at Ikea was reduced to $29.99, down from $49.99, a glass-door bookcase is now $189, down from $229, and a bed with storage and headboard is $499, down from $549.

It’s telling that these categories are considered discretionary purchases, meaning things that are nice to have but may not be daily necessities in the same way as groceries and medicine.

Consumers retreated a year ago as costs rose 20% to 30% more than a year ago and incomes failed to keep up, said Sarah Wyeth, managing director of retail and consumer at S&P Global Ratings.

This is causing consumers of all income levels to look for deals.

“The ‘budget conscious consumer’ is no longer just people on low or middle incomes. By far, the sharpest decrease in spending intentions comes from the highest income groups, and those who were previously the most immune to an economic downturn are now tightening their belts,” said Chad Lusk, managing director of the consulting firm global Alvarez & Marshal’s. consumer and retail group. “Retailers should also consider targeting deals on higher-priced discretionary merchandise to increase purchase frequency.”

The end result was a palpable sense of anxiety on the part of the industry.

“Retailers have been nervous for a long time,” Wyeth said. “There are just fewer dollars for consumers to spend.”

The challenge for retailers now is to get consumers out of that frugal mindset.

Juice sales

“General retail sales They haven’t been terrible, but they haven’t been absolutely fantastic either,” said Zak Stambor, senior retail and e-commerce analyst at market research firm eMarketer, in an interview with CNN.

Retail sales rose 0.7% in March from the previous month, a slower pace than February’s upwardly revised 0.9% gain, according to the latest government report. That beat the 0.4% increase economists had projected, according to a FactSet survey. The numbers are adjusted for seasonal fluctuations, but not inflation.

The story continues

Retail spending increased in seven of the last 10 months through March. Over this period, spending has been mixed, driven by purchases of big-ticket items such as cars, robust online shopping and spending on services such as restaurants, travel and entertainment. But elsewhere, spending on furniture, clothing, sporting goods and electronics remains weak.

Companies want to change that, Stambor said.

“Many retailers have said discretionary spending is slowing. People are buying essential items, also negotiating low prices and calling it a day,” Stambor said. “If we want to convince consumers to spend, we 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 all along. Walmart said in December that lower food prices will arrive this year. “It’s a very effective lever. It’s a great marketing strategy to raise awareness among consumers, get them into the store and convince them to open their wallets and spend,” said Stambor. “There is a perception of value, and value is very present in the minds of consumers, even as they continue to spend to a certain extent.”

Jesper Brodin, CEO of Ingka Group (Dutch holding company of Ikea Retail) told CNN in March that Ikea is “cutting prices more than ever.”

“This is not rocket science, we actually lower our prices, especially when we are in times where people have less money in their pockets,” Brodin said. “The last six to eight months have definitely been slower than we’ve ever seen.”

Michaels, the arts and crafts destination with more than 1,300 stores nationwide, said in early April that it was reducing prices on 5,000 products. “It’s more important than ever to deliver exceptional value to every customer looking to stretch their dollar,” Michaels CEO Ashley Buchanan said in a statement announcing the new discounts on April 18.

Specifically, the retailer said shoppers would see prices on frequently purchased products like paint, markers and pens reduced by up to 15%; reduction of up to 20% in the cost of stickers, paper and stickers; and painting canvases up to 35% cheaper.

Apparel chain H&M told analysts during its most recent earnings call that it would also cut prices. “At the end of this year, we believe we will have lower prices than we were at the beginning of this year,” H&M CEO Lars Daniel Ervér told analysts during the March conference call.

Other companies competing for consumer dollars are adopting their own price-cutting measures.

Baby products maker Frida announced in February that it had reduced the price of NoseFrida, its flagship product, from $17.99 to its original 2014 launch price of $14.99, and reduced the prices of other products.

Last week, children’s entertainment and restaurant 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 reducing game prices and offering 50% off food and drinks as part of a new summer discount promotion.

Stambor expects retailers to also look beyond price cuts to a broader range of levers to use “such as highly personalized offers in loyalty programs or specific limited-time offers” in their ongoing quest to increase sales.

–CNN’s Bryan Mena contributed to this report.

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