As inflation moderates, some U.S. retailers are starting to lower prices to re-attract shoppers previously put off by high prices.
Nearly three years of dealing with high inflation have led Americans to radically change their shopping habits: They’ve started opting for private-label products, switching to cheaper retailers or eliminating some nonessential purchases altogether. Retailers want those shoppers back, and big brands like Walmart, Whole Foods, Ikea and others are willing to cut prices in several categories to win them over.
“Transportation costs are lower and manufacturing costs are also moderating, so retailers can afford to take these lower costs and pass them on to the consumer,” Mickey Chadha, vice president of corporate finance at Moody’s, says in an email.
According to the Department of Labor, foods such as eggs, dairy and grains, as well as products such as toys, furniture, large appliances and electronics, are all cheaper than last year.
Which stores are lowering prices and why
When certain items become cheaper to produce, retailers have leeway to lower shelf prices.
The price cuts could also be due to increasing pressure from the White House. For months now, President Joe Biden has been asking retailers to lower consumer costs, telling them earlier this month to “use record profits to reduce prices.” Similarly, at a campaign event in January, Biden lashed out at corporations that “rob people” through “price gouging, junk taxes, greed, inflation restraint.”
Retailers may also be feeling the heat from everyday shoppers: “Most retailers can’t raise prices any further before there’s a reaction from consumers,” says Chadha.
During an earnings call in February, Walmart CEO Doug McMillon outlined several areas where prices are falling at the megastore.
“Our general merchandise prices are lower than a year ago and even two years ago in some categories,” McMillon said, referring to clothing, sporting goods and appliances. “In the food sector, prices are lower than a year ago in places like eggs, apples and deli snacks.”
In January the Ingka Group, which operates the largest number of Ikea stores, said the cost of raw materials for furniture was falling and that it planned to “pass on all savings” to customers during the first half of the year.
Last year, home decor store At Home announced a similar move in which it would permanently cut prices due to lower supply costs.
On Thursday, Michaels said it would lower prices on more than 5,000 products in the arts, crafts, DIY and home decor categories.
Don’t expect pre-pandemic prices “anytime soon, if ever”
When it comes to basic necessities like groceries, overall price cuts tend to be a little more complicated. Grocery stores often operate on slim profit margins, as low as 1%, so when the price of producing food increases, grocery stores have to raise prices somewhere to compensate.
In some cases, if the grocer has sufficient purchasing power, it can negotiate with its suppliers to lower prices. That, in part, is driving down prices at Walmart. Given the wide range of products a typical Walmart sells, the store may simply lower prices in one area and raise them in another to balance profit margins.
However, the supplier strategy is currently being tested by Whole Foods. At a supplier summit earlier this year, the Amazon-owned grocer told its sellers that he wants prices on shelves to better match falling producer prices, according to The Wall Street Journal. Whole Foods did not respond to a request for comment on how much, if any, prices have fallen since then.
While some retailers have cut prices on some categories of goods, the cost of most everyday items is not falling across the board, Chadha notes.
“Overall, I can’t think of any retailers that are lowering prices entirely yet,” he says. “Prices will not return to pre-pandemic levels anytime soon, if ever.”
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