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Shoppers are stressed, but some brands are raising prices anyway

In a media briefing call on Tuesday, CFO Andre Schulten called the increase 'moderate,' 'adequate,' and in line with 'the typical inflation consumers would experience.' P&G's move could be a harbinger of increasing prices, including on groceries, household staples, apparel and electronics. While spending data shows Americans are looking for bargains, economists warn that such price increases will further strain consumers battling stubborn inflation, high interest rates, and rising personal debt and energy costs. Get Starting Point A guide through the most important stories of the morning, delivered Monday through Friday. Enter Email Sign Up Meanwhile, consumers' outlook on the economy is the worst it has been in years. Advertisement Some retailers have already started raising prices. Walmart, a bellwether for the industry and US consumer, has targeted baby gear, kitchenware, and toys — items mostly manufactured in China. Industry experts expect some groceries will soon follow. The Trump administration's 50 percent steel and aluminum tariffs will lead to higher food and beverage packaging costs, such as coffee tins and beer cans, many manufacturers say. The Tax Foundation, a nonpartisan Washington-based think tank, projects that tariffs will affect almost 75 percent of US food imports, leading to higher prices on liqueurs and spirits, baked goods, coffee, fish, and beer. Advertisement There is still some hope, however, as not all brands and retailers can afford to up their price tags, said Simeon Siegel, a managing director and senior analyst at BMO Capital Markets. Some companies will have to absorb costs, negotiate fees with suppliers, modify their supply chains, or cut down staff, he explained. 'Tariffs aren't something magical, where the consumer all of a sudden says, 'We got you.' Tariffs don't give [companies] permission to raise price,' he said. 'Consumers give brands permission to raise price.' Still, consumers are stressed. Shoppers are spending less on vacations, buying store brands at the supermarket, and trading down to budget retailers. They're also leaning on credit cards and buy-now-pay-later services. 'Consumers have had a really tough time sorting through the 'tariff noise,'' said Lindsay Owens, executive director of Groundwork Collaborative, a left-leaning think tank. 'They don't know when prices are going to increase, what supply is going to be available.' Back-to-school shopping has also been a recent example, she said. Families this year bought clothes, shoes, school supplies, and electronics earlier than ever, in hopes of locking in deals and preempting tariff-induced price increases, according to the National Retail Federation. They also took advantage of summer promotions: During Amazon's Prime Day Event, sales of backpacks, lunchboxes, binders, calculators, and children's apparel were up 175 percent year-over-year, according to Adobe Analytics. The NRF also found that families are pulling back, noting that those with children in elementary through high school plan to spend an average of $858 this year, down from $874 last year. And shoppers are spending more at budget chains, such as J. Crew Factory and Aeropostale, while moving away from brand name backpacks such as Kipling and Herschel Supply, according to credit- and debit-card data from Consumer Edge. Advertisement Meanwhile, consumers are using AI tools to find bargains. In early July, as several major retailers promoted their summer sales events, Adobe Analytics tracked a 3,300 percent surge year-over-year in traffic to retail sites from generative AI platforms. 'What that tells us is consumers are leaning into Gen AI platforms to give guidance on where they can find cheaper versions of goods or better pricing on a certain item,' said Vivek Pandya, lead analyst at Adobe Digital Insights. Retailers report that their customers are more focused on value and price — and they are trading down where they shop and what brands they buy. Consumers of all income brackets are buying more store-label products when grocery shopping as opposed to national brands, as well as good-quality duplicates of fragrance, beauty and apparel. P&G has seen this trade-down trend in its own product assortment among lower-income customers, Schulten said Tuesday. For example, they are swapping out Tide for more affordable and less concentrated Tide Simply, or Pampers diapers for Luvs. P&G has also seen slower spending in several categories, including skin and personal care, baby care, grooming, feminine care, home care, and hair care. 'The lower-income consumer and the higher-income consumer are reacting to the current volatility they are seeing and they are observing, and we see consumption trends consistently decelerating,' Schulten said. 'Consumers are a bit more careful in terms of consumption.' The company, which saw net sales in its last fiscal-year quarter increase 2 percent to $20.9 billion, said it plans to restructure in response to tariffs. This includes discontinuing some brands and products, adjusting its supply chain, and cutting down its workforce by about 15 percent over the next two years, it said. Advertisement