The Slowdown Retailers Saw Coming

Inflation continues to cast a long shadow over American households, with prices soaring to levels 33 percent higher than those seen four years ago.

Despite prices easing in recent months, inflation’s cumulative effect has exacted economic strain on many families, who are grappling with a higher cost of living coupled with slower income growth. In short, the cost of a gallon of milk and a loaf of bread continues to rise while biweekly paychecks have remained nearly the same.

This dynamic, brewing for months, finally reared its head in reported retail sales figures in June — numbers that jarred the markets, yet confirmed what retailers saw coming months ago.

While publicly traded retailers exercised caution in public comments, wary of raising the specter that a slowdown in spending was almost certainly on the way, the actions they’ve been taking behind the scenes speak volumes.

They knew a meaningful portion of their shoppers were beginning to feel the strain, and with little relief in sight, they would risk losing them to lower-cost competitors and strategies if they didn’t adjust. So they began implementing a series of initiatives aimed at moderating prices and managing their portfolio of products to keep shoppers coming back.

According to our recent Advantage Outlook, a survey of top executives at retail and consumer packaged goods companies, there are three steps high-performing retailers are taking that separate them from the rest of the pack: they’re raising prices less than others, they carry a broader assortment of national brand products, and they discount deeper.

Let’s take a closer look at each of these three key measures retailers are taking, as well as two bonus strategies we’re seeing in the market:

1. Holding firm on pricing.

While it’s historically customary for retailers to raise prices on items commensurate with increases in their cost, those having the most success in this inflationary period are holding firm — or at least increasing less — their prices on key staples.

With the battle for unit volume at an apex, retailers continue to jockey for foot traffic. Many are finding that the best way to retain and recruit shoppers is to keep prices in check on core products.

2. Carrying a broader assortment of national brand products.

Even with prices on the rise and a growing percentage of consumers feeling the pinch, today’s shoppers demand choice. And that’s a powerful driver in where they decide to shop.

Retailers that offer choice — at varied price points — are winning the fight for volume.

3. Incorporating promotional pricing and discounts.

Retailers are adjusting their promotional strategies to selectively offer deeper discounts, aiming to attract budget-conscious shoppers without compromising profitability.

This includes targeted promotions timed to coincide with consumer payday cycles and special events. Major retailers like Walgreens and Target have recently announced substantial price cuts across various product categories in response to consumer needs and flagging sales.

Bonus strategies we’re seeing with more frequency:

• Flexible payment options: To accommodate financially strained consumers, retailers are increasingly offering flexible payment solutions, such as buy now, pay later. This option allows consumers to spread out payments for everyday necessities, providing immediate relief for budget-sensitive shoppers facing unexpected expenses.
• Enhanced rewards programs: Loyalty programs have become a cornerstone of retailers' strategies, offering personalized rewards and incentives to encourage repeat business. By leveraging data analytics collected from these programs, retailers can tailor offers to individual shopping preferences, enhancing customer satisfaction and retention.

Retailers Must Remain Nimble

The effects of inflation on consumer behavior have been profound, reshaping how Americans approach their everyday expenses. With one eye on their budgets, shoppers have become more discerning. They’re seeking discounts, buying more lower-priced brands, and prioritizing value-oriented staples.

And even if grocery prices hold firm starting today, the cumulative effects seen over the past few years will linger for months, if not years.

The good news is that retailers, for the most part, saw this coming, and they continue to evolve their approach.

Consider: Three giant retailers — Amazon.com, Walmart, and Target — announced recently that each will run targeted sales blitzes this summer timed with back-to-school season, offering significant discounts on thousands of products, including back-to-school essentials.

Amazon held its annual Prime Day sale on July 16–17, offering deep discounts on a range of products. Walmart's Deals event took place July 8–11, and featured thousands of discounts on items ranging from electronics to garden furniture and school supplies. Target, meanwhile, brought back its Target Circle Week from July 7–13, in which it offered savings up to 50 percent on thousands of products.

These types of smart adjustments are aimed at attracting and retaining shoppers by helping them maximize their purchasing power.

Retailers that continue to innovate across pricing, assortment, promotional strategy, and payment flexibility will be best positioned to win.

Jill Blanchard is president of enterprise client solutions at Advantage Solutions, a provider of outsourced sales and marketing solutions to consumer goods companies and retailers.