Here’s some welcome news for shoppers pinched by inflation: Even as retailers raise prices on many items, they’re also beginning to offer bigger, better deals on products such as televisions and furniture in an effort to attract customers and clear inventory.
Best Buy, for instance, is starting to offer deeper discounts on a wider variety of products, including televisions and computers, according to its executives. “We’ve seen a pickup in the promotional environment,” said Best Buy CEO Corie Barry on the company’s earnings call Tuesday. She said the company first began seeing increased discounting last July, but it has picked up more than expected on certain products this year and will likely hit pre-pandemic levels in coming months.
Target, too, has been marking down big, bulky items like patio furniture and televisions in order to make room in stores for items that consumers are more interested in right now. There has been “a change in some of the categories at the top of the guests’ shopping list,” said Target’s chief financial officer Michael Fiddelke on the company’s earnings call last week. Luggage sales, for instance, grew over 50% in its latest quarter.
Retailers could be returning to their old, discounting ways. The pandemic offered them a chance to escape from the relentless cycle of deals and discounts, which consumers had come to expect, and sell more items at full price. It was made easier by off-the-charts demand and supply chain woes that meant consumers were chasing limited availability on many products.
Now some retailers are stuck with something akin to buyer’s remorse, loaded down by too much of the wrong sorts of inventory. They’ve been placing larger orders earlier on in an effort to keep shelves stocked, since it’s taking much longer to get items manufactured and shipped from China. But that presents a forecasting problem, since it’s difficult to guess what customers want so far in the future, especially as buying habits are liable to shift quickly with the pandemic.
“As supply chain constraints ease and consumer demand wanes, warehouses are filled to the brim,” Jefferies analyst Jonathan Matuszewski wrote in a recent note to clients.
At Walmart, inventory levels have ballooned by 32% from a year ago, to levels that executives admit was higher than they wanted. They suggested that could lead to discounts. “We’ll work through most or all of the excess inventory over the next couple of quarters,” said CEO Doug McMillon on the company’s earnings call last week, adding that Walmart was in a period of “rightsizing” its inventory after spending the last several quarters focused squarely on in-stock levels.
Urban Outfitters said it is focused on “correcting” too-high inventory levels, which are up 32% from last year. “I think that there is a surplus of inventory mostly, I would say, across the board at retail right now,” said CEO Richard Hayne on the company’s Tuesday earnings call. “And so I think that we will see promotional activity increase, not just in Q2 but throughout the year and into holiday.”
The chance to buy more goods at a discount could provide some relief to consumers rocked by inflation that’s hit 40-year highs and pushed the price up on everything from gas to groceries to toys. Consumers have largely put up with higher prices, but there are now signs that many are beginning to feel the squeeze by switching to store brands and cutting back on discretionary purchases. Walmart noted that some people were buying half gallons of milk, instead of full gallons, for instance.
Consumers have also shifted their spending away from things like couches and sweatpants to makeup, dressy attire and luggage as they worry less about Covid-19 and return to the office, social events and travel. That could lead to deeper discounts on categories that have gone out of vogue.
A return to broad discounting would further pressure profits in the retail industry, which has already been slammed with higher costs on labor, products and shipping.
Some retailers are holding off on increased promotions, but could end up playing follow the leader under pressure to remain competitive on price. For instance, The Children’s Place noticed that one of its competitors “dramatically” increased promotions in the last several months, said CEO Jane Elfers, adding that it will keep a close eye on competitor pricing.
Others are opting to pack away goods they believe they can sell later rather than marking items down. For example, Kohl’s received holiday pajamas and fleece too late to put on shelves last year, but will wait to sell them until the weather turns cold again.