Cooling Inflation Spurs Price Drops From Retailers

Walmart and Target are cautiously optimistic that holiday sales and overall lower prices will increase spending.

November 21, 2023

Various retailers are facing a decrease in consumer spending on discretionary items as budgets are already stretched with increased prices, reported the Wall Street Journal. However, while inflation has cooled, companies who raised prices to cover costs during the pandemic are now facing further pressure on sales growth.

Companies are being cautious as the market shifts going into this holiday season. For shoppers, this could mean both lower prices than last year in addition to deals later in the season as retailers try to avoid an abundance of unsold merchandise, reported the Journal.

“We may be managing through a period of deflation in the months to come, and while that would put more unit pressure on us, we welcome it, because it’s better for our customers,” said Walmart chief executive Doug McMillon. He added that as prices fall further, the company would need to continue to reduce expenses.

According to the Journal, Walmart is proceeding cautiously when it comes to the health of the consumer. The company reported that sales of groceries and health and wellness products grew while general merchandise fell, including apparel, home goods and toys.

Additionally, Target’s third-quarter revenue fell more than 4% from the prior year, reported the Journal. Company executives said that weakness hit every category except for beauty. Target earns most of its revenue from nonfood items.

Christina Hennington, Target’s chief growth officer, said that the average price of food, beverage, beauty and other everyday items fell about 3%. The relief could spur more discretionary spending, she said, but the inflation over the years in food, household essentials, pets and baby will “take a while to overcome.”

Some brands introducing price cuts this season include the footwear company Vans, which lowered the prices on some of its classic sneakers by about $5; Levi Strauss, which will lower the price of several denim styles sold at department stores and discount retailers; and JCPenney, which is rolling back prices to 2019 levels on a variety of items this holiday season.

The Journal noted that while decreasing prices will help overall inflation reach the Federal Reserve’s 2% annual target, they are also a sign of overall softer demand. In October, U.S. retail sales posted the first monthly decline since March, aided by slowing auto sales and lower gas prices, according to the Commerce Department.

Cooling inflation and more deals from retailers will help spur holiday spending. The National Retail Federation predicted that despite having a slower growth rate than in the past three years, holiday spending will reach record levels during November and December. Spending is expected to be between $957.3 billion and $966.6 billion, a 3%-4% increase from 2022.