Considering inflation rates have pushed prices up for the past two years, shoppers have been less willing to open their wallets, hurting an economy of which about two-thirds comes from consumer spending.
As a result, retailers are also suffering due to dips in sales, causing them to yield slightly to the consumer market by marking down costs on inventory.
In the past year, shoppers have started pulling back much more as costs have risen 20% to 30% since three years ago, while incomes failed to match this spike, according to Sarah Wyeth, the managing director of retail and consumers at S&P Global Ratings.
“Retailers have been nervous for quite a while,” Wyeth said. “There’s just less dollars for consumers to spend.”
Now, stores are attempting to bring up sales again by dropping prices in the category of discretionary purchases–meaning the products that may be useful but are not essential, like food and medicine.
“The ‘budget conscious consumers’ are 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, the managing director of the 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.”
One corporation that has strategized these price cuts is Ikea, which has lowered prices on hundreds of products, marking down an 18-piece dinnerware set from $49.99 to $29.99, a glass door bookcase from $229 to $189, and a bedframe with storage and a headboard from $549 to $499.
According to a FactSet poll, retail spending has increased in seven of the past ten months through March. Though in that period, spending has been sporadic, boosted by purchases of high-ticket items such as cars, robust online buying, and spending on services such as food, travel, and entertainment. In other economic sectors, spending on furniture, clothing, sporting goods and electronics remains weak.
Various other retailers such as Walmart, Michaels and H&M, are also implementing price cuts of discretionary products and limited-time deals as a method of driving up sales in certain departments, and attracting more customers in general.
