Key facts
- Retailers must shift focus to offering better value to cash-strapped households this fall.
- Value is becoming a more complex concept for shoppers, extending beyond just price.
- US retail sales fell 0.6% in July, indicating consumer caution.
- McDonald's saw its US sales growth slow after changes to its value menu and loyalty program discounts.
- Walmart is leveraging low prices and multi-channel strategies, while Target is focusing on merchandise and store experience.
- Consumer brands have found it difficult to regain market share solely by reducing prices.
Retailers are facing a significant challenge this fall as they attempt to redefine and deliver 'value' to consumers who are increasingly scrutinizing their spending. While prices are a straightforward metric, the concept of value is becoming more nuanced, encompassing factors beyond mere cost. This shift is evident across various sectors, including fast food and consumer products, with major retailers set to provide updates on their strategies when they report quarterly earnings.
US retail sales saw a 0.6% decrease in July, according to Census data. A recent EY-Parthenon survey revealed that more than half of households did not save any money in June, highlighting consumer financial pressures. Will Auchincloss, EY-Parthenon's Americas retail sector leader, stated that demand remains strong but selective, making value, affordability, and clear differentiation paramount for retailers.
McDonald's experienced a slowdown in its US sales growth after introducing a new under-$3 menu and reducing discounts for digital loyalty customers, a move CEO Chris Kempczinski acknowledged as a 'bad trade.'
Pre-earnings analyst notes suggest that Walmart and Target are already addressing consumer value demands through distinct approaches. Walmart is noted for its aggressive pricing strategy, multi-channel execution, and investments in convenience, suggesting that saving time can be as valuable as saving money for customers. Target, historically not a purely price-driven retailer, is focusing on enhancing its merchandise assortment and store experience. Analyst Corey Tarlowe highlighted Target's significant refresh of its beauty, home accessories, and back-to-school offerings, which is reportedly improving traffic trends.
Reports from Bank of America and Acosta consultancy indicate that focusing solely on price reductions has not been effective for consumer brands seeking to gain market share, partly due to competition from store brands offering attractive value. The Acosta report also noted that while affordability has slightly improved for US households, their shopping habits have remained consistent, with value being a broader concept than just price, incorporating quality, convenience, innovation, reliability, and brand trust.