Over the past several years, Americans have noticed the prices of their favorite items slowly but surely increasing higher than ever before. It seemed as though retailers wanted to see just how much consumers would pay.
But now, in this strange game of chicken, it looks like the customer is finally pulling ahead. After retailers realized that Americans are drastically cutting back on shopping, companies around the country have given in and started lowering their prices again.
Costs Are 20% to 30% Higher Than in 2021
Ask any American, and they will tell you that their cost of living is higher than it’s ever been before.
And they’re not just imagining it; data shows that the majority of consumer goods are between 20% and 30% more expensive than they were just three years ago.
Americans Are Cutting Back on Spending
Of course, prices aren’t just rising for groceries, clothes, gas, and electronics. There has also been a substantial increase in the cost of utilities, mortgage rates, car payments, and tuition fees.
Millions of Americans are barely making enough to cover their bills, keep a roof over their heads, and ensure there’s food in the fridge, let alone buy new clothing, furniture, or anything else. Therefore, most Americans have cut way back on superfluous or even non-essential spending.
Everyone Is Now a “Budget Conscious Consumer”
Essentially, while historically only low-income earners were considered budget shoppers, now the majority of Americans fall into this category. In fact, even high-earners are spending more cautiously than before.
Chad Lusk, a managing director at global consultancy firm Alvarez & Marshal, explained, “The ‘budget conscious consumer’ is 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.”
Retail Sales Have Been Okay, Not Great
Even though most American consumers are scaling back, retail sales haven’t been quite as bad as one might think. According to Zak Stambor, a senior analyst at eMarketer, “Retail sales overall haven’t been terrible, but they’re not also absolutely great.”3
Retail sales have actually increased over the past year, but only marginally, and that slight increase isn’t really an accurate indication of the industry. That’s because “retail sales” includes cars, services, and entertainment, which have remained consistent. However, the clothing, furniture, and electronics markets are unquestionably struggling.
Retailers Were Getting Nervous
Over the past few years, companies that sell products like electronics, furniture, and clothing have become progressively more nervous that American consumers will finally run out of money.
And it seems that they have finally reached their breaking point; after the first fiscal quarter of 2024, several of the industry’s biggest companies announced they will be lowering their prices this year.
Ikea Is Slashing Its Prices
In March 2024, Jesper Brodin, the CEO of the Ingka Group, which owns the famous furniture company Ikea, announced that the store will be “lowering prices more than it has ever done.”
Brodin told CNN, “The last six to eight months definitely have been slower than we have ever seen…This is not rocket science really, we lower our prices, in particular when we are in times when people have less money in their pockets.”
H&M Will Have Lower Prices by the End of the Year
Beloved clothing company H&M made a similar announcement during its last earnings call that same month.
H&M CEO Lars Daniel said, “At the end of this year, we believe we’ll have lower prices than where we were at the beginning of this year.”
Michaels Says They Are Offering Value for Money
Arts and crafts company Michaels also told Americans that they can expect extensive discounts on more than 5,000 products at its 1,300 stores throughout 2024.
Michaels CEO Ashley Buchanan said, “It’s more important than ever to deliver exceptional value for every customer looking to stretch their dollar.”
Other Companies Will Focus on Loyalty Programs
While some retailers are keeping it simple and lowering their price tags for each and every shopper, others are taking a different approach.
Stambor explained that some companies will opt for “highly-tailored offers within loyalty programs or limited-time specific offers” to increase sales this year.
Walmart Will Continue to Promote Its Low Prices
Meanwhile, some big-box retailers like Walmart and Costco, which have worked to keep their prices as low as possible, will be focusing on advertising their consistently affordable products instead.
As Stambor explained, “There is the perception of value [at Walmart], and value is very much front of mind for consumers even when as they continue to spend to some extent.”
Focusing on Sales Can Make a Big Difference
Stambor explained the situation in the simplest terms: “If you want to convince consumers to spend, you have to give them a reason to do so. Lower prices are a clear opportunity to drive people into the store or online.”
Hopefully, these low prices will be a win-win for both retailers and American consumers. Americans can go back to purchasing the products they want, not just the ones they need, and retailers will see a significant increase in sales over the coming year.
