US Shoppers on the Hunt for Deals as Retailers Increase Promotions
As the pandemic continues to impact household finances, US shoppers are becoming increasingly cautious when it comes to purchasing nonessential goods. Faced with rising financial stress, consumers are seeking discounts and special deals, prompting retailers and consumer-goods makers to ramp up their promotional efforts. This shift in consumer behavior has presented challenges for companies like Whirlpool Corp., whose revenue and earnings were negatively affected by discounts and special sales in the last quarter. Previously, such promotions were rare during the pandemic due to supply chain disruptions.
To appeal to bargain-hunting customers, Petco Health & Wellness Co. has also turned to promotions. Foot Locker Inc., on the other hand, has openly informed shoppers to expect deals. The company’s Chief Financial Officer, Mike Baughn, explained that with sales falling short of expectations, they are taking more aggressive actions to drive demand and manage inventory for the upcoming holiday season. This growing trend of offering promotions reflects the declining financial health of households, with approximately 30% of US shoppers now purchasing whatever brand is on promotion, compared to just 17% in January.
While this could bring some relief to budget-conscious shoppers, investors are concerned about the impact of increased promotional activity on retailers’ earnings. Retailers are already grappling with declining unit volumes and elevated levels of theft, and the additional strain of markdowns to clear inventory has further dampened investor sentiment. Macy’s Inc., for instance, experienced its largest weekly share decline in three years following disappointing results attributed to clearance markdowns. Despite this, the retailer had anticipated even heavier promotions, suggesting that not all companies are resorting to drastic price cuts.
Certain companies, like Abercrombie & Fitch Co. and Dick’s Sporting Goods Inc.’s Athleta, are confident in their strong branding and loyal customer base, enabling them to withstand limited price cuts or even avoid promotions altogether. They have witnessed steady sales and are optimistic about their outlook. Nevertheless, as the inflation rate slows and cautious consumer behavior persists, more retail companies are becoming interested in promotions. Ulta Beauty Inc. has already observed a slight increase in promotions after two years of strong consumer demand, although these promotions are expected to remain below 2019 levels.
Retailers and brands are recognizing the need to provide value to consumers seeking discounts. Ibotta, a company that collaborates with major retailers such as Walmart Inc., Aldi, and Neutrogena to offer cash back and other discounts, has seen an uptick in interest from brands like Samsung, Weight Watchers, and Coleman. Nike Inc. and Gap Inc.’s Athleta are offering 8% cash back through Ibotta, while Walmart’s Sam’s Club is promoting up to 7.5% cash back. The focus now is on attracting shoppers to brick-and-mortar stores, particularly in categories such as back-to-school products, sporting goods, toys, and pet care.
The mass-market retailers, Walmart and Target Corp., faced inventory challenges last year, which required them to markdown discretionary merchandise. However, with inventories now under control, pricing has recovered enough to contribute to second-quarter profit gains. While Walmart has increased the number of temporary price reductions in its food department compared to last year, shoppers should not expect fire sales; rather, retailers will adopt a strategic approach to promotions, acknowledging the financial pressure on customers while maintaining profitability.
As more companies embrace promotions, it is clear that US shoppers are prioritizing value and seeking deals on nonessential goods. Retailers are adapting their strategies to accommodate this consumer behavior, although it remains a challenge to strike the right balance between attracting shoppers and preserving earnings. As the economy continues to recover from the pandemic, the future of promotions in the retail industry will be closely watched to gauge how consumers respond and how retailers adapt to changing market dynamics.
