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 a year 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.
Shoppers carry Macy’s bags outside the company’s flagship store in the Herald Square neighborhood of New York, US, on Thursday, April 11, 2024. The US Census Bureau is scheduled to release retail sales figures on April 15. Photographer: Yuki Iwamura/Bloomberg via Getty Images Yuki Iwamura/Bloomberg/Getty Images
“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
“Retail sales overall 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% in March 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 on services such as restaurants, travel and entertainment. But elsewhere, spending on furniture, clothing, sporting goods and electronics remains weak.
Businesses want to change that, Stambor said.