Major retailers lower prices as competition heats up

Target’s CEO on Wednesday said the retailer was cutting prices on thousands of items. Traffic in its stores and the number of purchases made were down in the first quarter, and the plan to lure customers back relies on pricing. But it’s not just Target — price competition is making a comeback.

Walmart did great in the first quarter. Its revenue was up almost 6%. Why? Price competition.

“Customers are responding to our price leadership,” Walmart CEO Doug McMillon said on the company’s earnings call. Low prices drew crowds.

A week later, Target, which did not do great in the first quarter, seemed to fire back.

“We’ve made price cuts on 1,500 frequently shopped items in many markets, and we’re planning additional price cuts on thousands more items this summer,” CEO Brian Cornell said on Target’s earnings call.

“A lot of traffic has been moving to discount stores, and so there is a huge competition going on now,” said Denise Dahlhoff, director of marketing and communications research at The Conference Board.

Walmart said a majority of its new customers are coming from higher-income groups seeking refuge from high prices elsewhere. “So they want to hold on to those shoppers, Dahlhoff said.

But this is not just a Walmart-Target thing. 

“We’re definitely seeing the return of price competition across a wide variety of core goods,” said Alan Detmeister, an economist at UBS. “Core goods prices have been falling 10 of the past 11 months.”

Even some businesses that have been conspicuously needing to raise prices — like restaurants — may soon feel a need to just not.

“You’re seeing the decline in guest traffic,” said Gregg Thomas, a restaurant CEO adviser with BDO. 

He said some low-income diners have stopped eating out at some places.

“Now you’re starting to see McDonald’s and Wendy’s both going after value menu items to try to win back the customer,” he said.

This is happening, perhaps, because people have reached the limit of their price tolerance, but also because stores’ inventories are up — so it’s easier to shop around. It all bodes well for goods prices this year. 

But services like rents or insurance? Price competition hasn’t hit them quite yet.