What's behind the summer of discounts
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The season of markdowns is heating up with retailers and restaurants cutting prices and dangling discounts to lure back consumers and get them to spend.
Why it matters: Price-sensitive consumers have been "trading down" to cheaper goods to save money.
- "The lower-end customer is really being stretched" with their spending, Five Below CEO Joel Anderson said during a June 6 earnings call.
- This has caused sales declines for some stores including Target but has been good for business at Walmart.
The big picture: Walmart, Target, Walgreens, Aldi and Ikea have started to roll out a string of price cuts. Burger King and Starbucks released new meal deals and McDonald's new $5 value meal is coming June 25.
- Costco's new chief financial officer Gary Millerchip said during a May 30 earnings call that the $1.50 hot dog combo price is "safe" and the membership club was reducing some prices.
- Big Lots, which reported plunging sales June 6, said it is looking to "significantly grow" its close-out bargains to create a "treasure hunt experience" in stores.
Zoom in: Seth Marks, Big Lots senior vice president of extreme value sourcing, told Axios that the retailer is focusing on adding more of its "extreme bargains" to create "surprise and delight" for shoppers.
- "There's a trade down happening for sure," Marks said. "We attract some higher income customers and we're seeing more frequency of visits and getting higher penetration of these close-out buys."
- "There's a lot of uncertainty right now and anytime we feel uncertainty, it's a great time for off price," Marks said, noting that election years are also times of financial uncertainty.
State of play: Spending at discount or value grocery stores began to increase in fall 2023, likely as more consumers "traded down" to save money and traded from premium to value grocers, according to a Bank of America report.
- Consumers traded down to offset high grocery costs and rising costs of housing, insurance and autos, the report shows.
Stunning stat: Grocery prices were up nearly 30% in April 2024 compared to January 2020 levels, Bank of America said.
What they're saying: "This is likely to be a summer of value, or maybe a year+ of value, to draw more price-sensitive customers back to fast food," Morgan Stanley analyst Brian Harbour recently wrote in a research note.
Yes, but: Not all retailers have been focused on price cuts. Dollar Tree has been raising prices and adding new items.
- Dollar Tree raised its base price by a quarter to $1.25 in 2021 and is adding a $7 cap, up from $5 that was set in June 2023.
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