Why Walmart is cutting prices on certain items
New York (CNN Business)A glimmer of relief is emerging at the checkout aisle: the return of discounts.
Walmart (WMT), Best Buy (BBY), Gap (GPS), Target (TGT), Bath & Body Works and others are increasing promotions and lowering prices on merchandise to entice inflation-weary shoppers to buy extra goods sitting on their shelves.
Months ago these chains stocked up on merchandise, preparing for supply chain shortages and what they projected to be robust consumer demand. But since they ordered, their plans have been derailed by the highest inflation in more than 40 years and slumping consumer confidence.
Rising inflation has forced many consumers to pull back — particularly low-and-middle income shoppers, several retailers say. Cash-strapped shoppers are struggling to afford groceries and gas and have curtailed their discretionary spending.
This has left retailers with too much of the wrong stuff: Think back to the early days of the pandemic, when everyone was redoing their homes and buying new laptops. Stores are overloaded with that stuff now, and they need to discount those items to juice demand.
“These retailers have mispositioned their inventory,” said Brian Nagel, a retail analyst at Oppenheimer & Co. “In certain areas, they’re too heavy on inventory and need to clear it out.”
Where to find discounts
So shoppers can expect to find more deals on discretionary goods such as clothing, electronics, furniture, home goods and bath items — the stuff that has been highly sought after since the start of the pandemic and many people may have already bought.
Walmart: “The increasing levels of food and fuel inflation are affecting how customers spend,” impacting their ability to buy general merchandise, Walmart CEO Doug McMillon said last week. Walmart said it would take more markdowns than it previously expected to throughout the inventory, particularly for clothing.
The company also introduced a new program for customers to buy refurbished items from brands like Apple (AAPL) and Samsung for cheap.
Best Buy: On Wednesday, Best Buy said inflation was impacting consumer-electronics spending, and the electronics industry would be promoting more stuff.
“As high inflation has continued and consumer sentiment has deteriorated, customer demand within the consumer electronics industry has softened even further,” Best Buy CEO Corie Barry said.
Gap: Earlier this month, Gap said it has been increasing promotions to move out inventory during its second quarter, while Bath & Body Works said that it did the same as it saw store traffic slowing down.
“Customers, particularly lower-income customers, have become more cost conscious and are limiting purchases and/or seeking out lower-priced sale merchandise,” the company said. “They are being impacted by the overall inflationary environment.”
Target: Last month, Target said it was carrying too many big, bulky products such as furniture, televisions and kitchen appliances during its previous quarter as consumers moved away from those products. “We didn’t anticipate the magnitude of that shift,” Target CEO Brian Cornell said.
Target marked down some of those bigger items to make room for products in higher demand.
Discount stores: Shoppers may also be able to find more bargains at closeout retailers such as TJX (TJX) and Burlington (BURL), which capitalize on inventory gluts. These chains buy up high-end goods for cheap, then turn around and sell them to shoppers at a discount from their original price.
“The buying environment now is better than it has been for years,” Burlington CEO Michael O’Sullivan said last month. “We’re seeing brands that we haven’t seen for a couple of years.”
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