Shoppers, get your credit cards ready. Some, but not all, of America’s largest retailers have too much inventory just lingering around—and while this may portend badly for these companies’ stock prices and earnings, consumers can expect some great deals coming their way.
Walmart, for example, announced in July that it would be slashing prices, especially on clothes. The reason it offered, in a Fiscal Year 2023 update, is that highly inflated food prices are “affecting customers’ ability to spend on general merchandise categories and requiring more markdowns to move through the inventory.” (Yeah no kidding, Walmart! How about a sale in the grocery section?)
Target, too, announced plans for “inventory optimization”—including markdowns, removing excess inventory, and canceling orders for new goods. These moves are designed to “right-size” its inventory for the remainder of the year, “and create additional flexibility to focus on serving guests in a rapidly changing environment.” In other words, who knows what this crazy economy is going to do next, so Target wants to be ready to adapt and change. The company learned this lesson the hard way; just three weeks before announcing these changes, Target’s shares fell by 25 percent, due to worse-than-expected earnings.
But not all prices are going down. Brands like Coca-Cola, Dove beauty products, Cottonelle toilet paper, Huggies diapers, and Burger King, among others, have all raised prices, and they are not planning to lower them any time soon. McDonald’s noted that some customers appear to be “trading down” by buying less expensive products and fewer combo meals. But others are “trading down” too, simply by visiting McDonald’s. These are consumers folks who used to go to more expensive restaurants, but now if they want to avoid cooking, they seek out a comparatively less expensive Big Mac.
According to Kimberly-Clark CEO Mike Hsu, the company needs to keep walking a fine line, offering lower-cost products to budget-conscious consumers, while not “pushing” customers toward those cheaper alternatives. “We want to be very cognizant that we don’t move the whole market that way. There are plenty of consumers that, despite the impact of the economy … they are still looking to trade up,” he said.
Luxury shoppers, meanwhile, are continuing to spend with aplomb despite higher prices. LVMH Moët Hennessy Louis Vuitton SE said that it had not received any customer pushback to its higher prices. Nordstrom and Macy’s also indicated that sales of luxury goods were strong. Let them eat cake, purchased at inflated prices.
Discussion Questions:
- Why are Target and Walmart lowering the prices of some of their goods?
- Why would consumers of luxury goods not push back against higher prices?
- Given what McDonald’s is observing with its customers, what other brands and products would you expect to find some customers cutting back on, while other customers are buying more of the offerings?
Sources: Grace Dean, “Walmart Is Cutting Prices of Clothes and General Merchandise to Appeal to Inflation-Hit Shoppers,” Insider, July 26, 2022; Connor Hart, “Don’t Expect Big Consumer Brands to Lower Prices Soon,” The Wall Street Journal, July 26, 2022; Nathaniel Meyersohn, “These Stores Are Increasing Deals, Lowering Prices to Attract Inflation-Weary Shoppers,” CBS News, August 1, 2022; Melina Delkic and Jason Karaian, “Target Will Take a Profit Hit to Clear Out Inventory that Shoppers Don’t Want,” The New York Times, June 7, 2022