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How are price-conscious consumers impacting retail?

March 29, 2012

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By Flickr user USAG -Humphreys

I felt a little scooped when I looked at The New York Times on Wednesday because one of its top stories online was akin to a blog post I’ve been gathering string for -merchants cutting prices to accommodate newly frugal consumers.

According to the NYT piece, “Knowing cost, customer sets the price,” the constant barrage of weekly markdown sales over the past decade or two has clued shoppers in about retail makups.  The customer doesn’t even pay attention till 40 percent off, one retailer laments.

That customers have been trained to wait for discounts is not a particularly new concept nor is it unique to consumables like clothing and food – we all have heard the advice to hit up car dealers for extra price cuts at the end of the month, and even at the wholesale or commercial level, the notion of sales reps striking better deals at the end of a month or a quarter – to make quotas or eke out some extra commission – is pretty well known.

But an interesting twist these days is the plethora of ‘new lower prices’ signage – and not just on moribund real estate!  According to my notes, signs and circulars from Kroger, Aldi and IKEA have trumpeted the same concept. A local hardware chain is doing the same thing, and I’ve noticed ‘new lower price’ tags dotting the shelves of Meijer, a regional chain akin to a Super Target grocery-general merchandise combo.  Some of the price drops are significant – I think my major vice, Jiffy Pop popcorn, dropped about 25 percent at Meijer, while a domestic chardonnay I like is down about 20 percent, permanently, as well.  Granted neither item is required for sustenance but I’ve also seen permanent markdowns on produce, dairy and grains.   And seeing a wide variation in price – popcorn $1.34 at Meijer compared to $2.19 at my upscale local chain — does set the consumer mind whirring.  What’s the wholesale rate on Jiffy Pop and why does one retailer need to charge 85 cents more than another on a single-serve packet?

Walmart reportedly plans to slash grocery costs by $1 billion, too, and if you want to focus on food prices this pre-Easter period – traditionally a time of sales on specific items like butter lambs and hams, eggs and baking supplies – is a good time peg.  Talk with grocers and grocery consultants about typical markups, how price cuts affect margin and even how shelf space at supermarkets may be allocated differently as consumers seek more generic or otherwise cheaper goods.

Depending on your beat – from technology to health care (OTC meds, pharma) to transportation to financial services (bank fees, etc.) you can probably find a price-conscious consumer angle.  As mentioned, IKEA has dropped the tab on staples like bookcases, and we all have heard about J.C. Penney’s new everyday low price strategy.  What about Main Street merchants and even restauranteurs; not to mention the ripple effect on suppliers and wholesalers.

Pundits tell us that consumer spending props 2/3 of the nation’s economy and its lag is detrimental to the ongoing recovery.  What would be the effect of permanently frugal shoppers?  Are new low prices another peril to jobs creation?  Here’s an interesting NielsenWire blog post on that conundrum and more.

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