Heading into the fall, retailers will need to shift their emphasis more toward offering a better value for cash-strapped households.
While retail prices are relatively straightforward things, value is harder to nail down as households are continuing to look for ways to get the most out of their limited dollars. Other areas of the economy are navigating this shift, including fast food and consumer products, and this week the major retailers will provide the latest update when they report quarterly results.
US retail sales dropped 0.6% in July, according to Census data published Friday, and an EY-Parthenon survey published last week found more than half of households didn’t save any money in June.
“For retailers, demand remains intact but increasingly selective, making value, affordability and clear differentiation more important than ever,” Will Auchincloss, EY-Parthenon’s Americas retail sector leader, said in a statement.
McDonald’s learned this the hard way when the burger chain rolled out a new under-$3 menu that led some locations to effectively raise prices on certain items. At the same time, the company took away some discounts that impacted digital loyalty customers. As a result, McDonald’s saw US sales growth slow.
“That ended up being a bad trade,” CEO Chris Kempczinski said.
Target and Walmart appear to be already offering value their customers are looking for, albeit in their own distinct ways, according to pre-earnings analyst notes on each. In particular, analysts emphasized Target’s focus on fresh merchandise, while highlighting Walmart’s powerful combination of low prices and multi-channel execution. The companies report second quarter results on Wednesday and Thursday, respectively.
As America’s largest grocery store, Walmart competes aggressively on price — and it often wins.
But while new customers might come to the retail giant looking for a bargain, they are often sticking around for the wider range of merchandise and ultra-fast delivery. Walmart’s investments in convenience are a bet that saving time can be a comparable value for customers as saving money.
Target, meanwhile, was never the place for shoppers focused purely on price.
Its customers were historically content to pay a little more in exchange for more exciting products and a pleasant shopping experience. But that reputation didn’t do the company any favors when rising inflation prompted many households to take a harder look at their budgets, especially when the company conceded to not living up to its style and performance standards.
With this year’s focus on fresh merchandise and sharper stores, the Bullseye’s turnaround effort appears to be winning shoppers back.
Jefferies analyst Corey Tarlowe highlighted Target’s addition of 3,000 beauty products across 60 new brands, a 75% overhaul of home accessories, and a 50% replacement of back-to-school merchandise.
“This represents one of the broadest assortment refreshes in years and is beginning to translate into improved traffic trends,” he said in a note published Friday. In other words, helping shoppers discover interesting new products can be an expression of value that goes beyond price.
Prices still matter a lot, but there are limits to the success consumer brands have had this year focusing on that metric to win with customers, according to a Bank of America report Thursday.
The report cites packaged foods companies that have spent much of the past year dialing prices back down from their peaks in the hope of gaining market share. “It hasn’t worked,” the analysts wrote. Among the reasons, the report said, was stiffer competition from store-branded products offering attractive value to consumers.
Likewise, a July report from the Acosta consultancy found that US households have seen affordability improve slightly compared to 2023, but their shopping habits from that period are proving “sticky.”
“Value has become a broader and more sophisticated concept than price alone,” the report said. “Promotions remain important, but they represent only one component of a larger equation that increasingly includes quality, convenience, innovation, reliability and brand trust.”
Shoppers know value when they see it.
