Latest news with #priceincreases
Forbes
a day ago
- Business
- Forbes
Survey: Retailers Face Consumer Backlash Over Tariff Price Hikes
Shoppers are paying close attention to how retailers handle the import crisis, with most saying they would reward brands that absorb higher costs. Three out of four consumers would be inclined to abandon their favorite retail brands over claims of price increases necessitated by new tariffs. That's one of the top-line findings in a new survey by First Insight, suggesting that inflation-weary shoppers are annoyed and growing suspicious of major retailers' announcements about rising import costs. Among U.S. shoppers, only one in four said they are convinced that tariffs alone are responsible. Inversely, 80% of the 1,120 American shoppers surveyed said they would reward brands that absorb those extra expenses with increased loyalty. Unlike during the pandemic, a cataclysm that played no favorites, the trade war is fast becoming a consumer marketing minefield. In spite of persistent uncertainty and chaos surrounding the U.S. government's evolving tariff policies, most retailers have issued public statements about raising prices. Among 306 top retail and brand executives surveyed by First Insight, 77% reported they had preemptively announced price hikes even though the majority, 60%, concede they expect to lose market share to competitors that don't. The survey reveals some strong undercurrents in the consumer economy that retailers ignore at their peril, and a clear opportunity to attract new customers. For starters, price trumps brand loyalty more than ever. Pandemic-driven inflation coupled with the surge in e-commerce gave consumers the motivation and the tools to aggressively shop for the lowest price for just about anything. The 'value for money' calculation is increasingly top of mind among consumers. Every major retailer of groceries and other comparable commodities and essentials is devoting more shelf space to lower-priced, higher-profit private label brands that shoppers deem equivalent to national brands. Brand loyalty is losing its grip on the many who are struggling to pay higher mortgage, rent, and insurance bills. Shoppers are better informed than ever. One can cruise the aisles of any store and price-check items using their cell phone before deciding whether to buy. That gives retailers who hold the line on prices a leg up on competitors that pass on higher tariff expenses. Hold the line might be a good slogan for an ad campaign. As an industry, retail profits soared during the pandemic. Walmart, for example, reported earnings per share that rose 70% over the past three fiscal years. The dichotomy between household budget pain and outsized retail profits was not lost on the public and suspicion lingers. In 2022, for example, McDonald's said it was raising prices 10 percent at its U.S. restaurants while simultaneously reporting better-than-expected sales and profits. Its CEO explained at the time, 'consumers are willing to tolerate it.' The dust has yet to settle on whether and by how much import tariffs might rise. Either way, 'Any talk of pricing can not only shake the market, it can shake the consumer,' according to Sonia Lapinsky at Alix Partners, a retail advisory consultancy. Lapinsky recently told The Wall Street Journal, 'If they hear about price increases, it might just prevent them from going in the store at all.' Consumers surveyed by First Insight said that the top two actions retailers and brands can take to offset price changes are: 1) clear communication–especially around if and why prices are rising. And 2) introduce new efforts to soften the blow, including offering loyalty points or discounts. Good advice in any season.
Harvard Business Review
20-05-2025
- Business
- Harvard Business Review
To Survive Uncertainty, Companies Must Recommit to Identifying the Right Customers
In the last five or so years, corporate responses to a challenging macroeconomic environment have been dominated by two themes: cost cuts and price increases. This isn't surprising; economic turbulence often triggers short-term, reactive thinking as executives fixate on immediate concerns like meeting or beating quarterly earnings expectations. Today, as tariffs have thrown company plans into turmoil and forecasts of economic growth have become muted, it's likely that executives will turn again to those tools. The trouble is, we've found that cost-cutting is ineffective in isolation, and consumers are showing that they're increasingly unable or unwilling to pay higher prices, or will purchase less or make alternative product choices. This short-term focus may serve for a quarter or two, but it frequently distracts from what really matters over the long term: creating value for the customers who, in turn, create value for you. Companies that want to deliver the results their investors expect will have to earn them, not engineer them. That process begins with choosing the right 'win-win' customers to serve. The Limits of Engineering Profit Growth In the five years from the beginning of Covid through 2024, businesses confronted unprecedented challenges—not only a global pandemic that disrupted operations worldwide for more than a year, but also an extraordinary range of variables affecting supply chains, demand patterns, and profitability. A large majority responded to the crisis with some form of cost-cutting and price increase. But our recent analysis suggests that these measures have only a limited impact on a company's long-term value potential, unless they're done in conjunction with, and in the service of, the strategic work of picking the right customers. Take cost-cutting, which has been a dominant theme since Covid-19. In 2023 alone, 69% of businesses cited cost-cutting as a primary strategic focus, according to a Hackett Group survey. However, when we analyzed the detailed financial results of a large, relevant cohort of 1,000 companies in the Russell 3000, we found that operating efficiency improvements—measured as reductions in operating expenses (SG&A, or selling, general, and administrative expenses) relative to sales—showed essentially no correlation with growth in the market value of the company (as measured by total shareholder returns, or TSR: share price appreciation plus dividend yield). Efficiency matters, certainly, but the data strongly suggests that businesses can't rely solely on cost-cutting to flow to the financial bottom line and thus deliver superior long-term returns. Pricing presents a more nuanced picture. According to data from the Bureau of Economic Analysis (BEA), overall inflation rose by about 6% between Q1 2022 and Q3 2023, with roughly half of that increase attributable to the expansion of corporate profit margins—in other words, companies raising prices faster than their input costs. The remainder was largely attributed to higher labor and non-labor costs. Based on BEA data retrieved in February 2024 from Q3 2023 to Q3 2024, however, inflation slowed, and the role of profit margins diminished sharply, accounting for only approximately 20% of the total price-level increase. This notable reduction in the profit-driven share of inflation suggests a meaningful decline in firms' pricing power—or at least their willingness or ability to expand margins through price increases. Indeed, evidence is mounting that consumers are nearing their limits. Indicators such as retail sales, consumer confidence levels, new residential construction, and, of course, the stock market, underscore this point. What price elasticity remains will likely be needed to cover the higher cost of materials from tariffs and other trade restrictions. 'Give me a lever long enough and I will move the world,' the Greek polymath Archimedes is purported to have said. But price is no longer that lever. How to Earn Profitable Growth With pricing headroom constrained and cost-cutting shown to have no direct correlation to shareholder returns, what does work? Where should business leaders focus, especially now that economic growth is slowing and uncertainty is increasing? They should make deliberate, smart choices about where and how to compete—that is, which customers to serve and how to earn their business. Management must have the right facts, strategies, capital allocation, and organizational capabilities to choose the right customers: those where 'win-win' value relationships are most likely to occur. Our analysis of that cohort of top-performing companies over the past five years reveals a common thread: They made deliberate choices about who their most critical, profitable customers were and tailored their operational and commercial strategies to serve them. This often required making bold decisions not only about whom to target, but equally, whom not to. Two U.S.-based companies—Dillard's department stores and T-Mobile—are excellent examples of choosing these 'win-win' customers. Dillard's: Strategic customer selection Over the past five years, Dillard's deliberately shifted away from the common department store strategy of maximizing their addressable market by going after a wide variety of customer segments. Instead, the company shifted its focus to up-market customer segments; as CEO William Dillard and president Alex Dillard told shareholders in 2023, 'We are the place where customers are far more motivated by fashion and newness than by price or promotional measures.' Having identified who those customers were, Dillard's reoriented virtually all its activities to attract, serve, and create value for them. They: Strategically reduced discounting and off-price promotions (a strategy that most of their peers leaned into), which improved the perception of the brand. Focused their product offerings on high-performing, trend-focused items, emphasizing exclusivity. Refined store design, marketing, and customer experience to align specifically with their desired customer segment. Invested strategically in inventory management, quality assurance, and localized assortment analytics to make sure each Dillard's store stocked what its premium customers were likely to want. The results were impressive: According to our analysis of data from the financial data and software company FactSet, from 2019 to 2024, Dillard's gross profit grew at triple the pace of its peers, its operating margins went from worst-in-class to best-in-class, its share of industry economic profits (i.e., profits after accounting for the cost of capital) increased by 45%, and it delivered nearly 50% TSR. T-Mobile: Finding underserved customers T-Mobile followed a different path to superior returns. The mobile phone carrier used a deep understanding of the competitive landscape and the needs of its customers to capitalize on the strategic vulnerabilities of its peers. As Verizon and AT&T battled it out over premium customers in large urban centers, T-Mobile identified underserved customer segments, such as underpenetrated geographic regions, 'network seekers' who prioritize broad geographic coverage (including international), and value-conscious consumers seeking affordability without compromise. T-Mobile addressed these segments through two primary strategies: one technical, one focused on customer experience. Technically, T-Mobile decided to leverage the midband 5G spectrum. While this was slower than Verizon's Millimeter Wave 5G spectrum, it provided broader geographic coverage and was still fast enough for most consumers, especially the ones T-Mobile was targeting. At the same time, the company pursued its 'un-carrier' strategy to eliminate traditional pain points experienced by their target customers, such as activation fees and hidden charges, service contracts, etc. While this approach had been part of T-Mobile's strategy since 2013, its impact accelerated significantly as T-Mobile successfully closed the gap on coverage quality with Verizon and AT&T. Between 2022 and Q2 2024, T-Mobile added more customers than all scaled broadband competitors combined. T-Mobile was able to translate this newly created consumer value into shareholder value, increasing its industry economic profit share by 20% over the past five years, according to our analysis, along with TSR averaging about 25% a year—significantly outperforming its rivals. Strategic Recommendations for Business Leaders A strategy of choosing and keeping the right 'win-win' customers rests on four pillars: The right facts to identify the most profitable customer segments and their value-drivers A detailed mapping of where and why value is concentrated inside a company's business and in the external markets is a critical starting point. Detailed analysis almost always shows that economic profit (that is, profit after accounting for the cost of capital) is concentrated in a few intersections of product with customer segments, geographic markets, or channels. For example, it's far more profitable for bottlers to sell single cans of soda in convenience stores than two-liter bottles in supermarkets. Typical management and strategic planning departments fail to develop economic facts at a sufficiently granular level. As a result, management is forced to make decisions 'around the average,' which is often misleading. With more granular information, companies can direct their investment to where the payoff is biggest—and, equally important, they can use cost and price levers in ways specifically focused on increasing economic profit. Without that information, investments and initiatives are likely to be evenly spread across a company's activities. The right strategies that focus on the right opportunities Knowing the who (which customers to serve) and the how (which levers create value for them and you) now requires building the what: strategies that deliver a coherent, coordinated approach to product offering, marketing, and operations. Dillard's, for example, identified upmarket customers as an opportunity and molded its product offering, store design, and operational capabilities around how to best serve those customers—as well as which offerings/capabilities did not serve these purposes (e.g., those that appeal to more price-sensitive customers). Similarly, T-Mobile's 'un-carrier' strategy deliberately stripped out traditional features that alienated value-conscious customers while emphasizing network reliability and affordability, delivering a strategy fully aligned with its chosen customer segments. The right resource allocation to go all in on the right opportunities The resource-allocation process—capital budgeting, annual budgeting, etc.—must then be aligned with the right strategies. Too often, companies fail to connect the capital budget and strategic planning. As a result, when companies allocate resources, they pay too much attention to how much revenue a customer generates and not enough to how profitable that revenue is. The architects of the budget apportion resources based on 'last year, plus or minus' instead of on how much value those resources can create. Ensuring that all resources—capital, operating expenses, management time, etc.—are appropriately focused is at the heart of capturing and keeping the most profitable customers. The right organizational and operational capabilities to support the strategy Behind every strategic win lies a winning organizational foundation. Enduring success depends on the capabilities and conditions that support it—particularly consistent, high-quality decision-making processes across capital allocation, strategy development, performance management, talent management, and incentive design. When these systems are tightly aligned with strategic goals, they become powerful enablers of sustained performance. For example, Dillard's localized assortment success required the right inventory management, real-time store/SKU data, and supply chain logistics capabilities. . . . The economic turmoil of the past five years has highlighted the importance of building a strategy by working from the customer back to products and operations. As uncertainty extends into 2025 and beyond, prioritizing the customer—the right customer—is not merely advantageous: It is essential for enduring success. By choosing the right customers, then orchestrating a combination of strategic and line-item actions around those choices, companies can outperform their peers, deliver higher returns to investors, and win for themselves a greater share of their industries' economic profit. They'll also position themselves for even more success when overall growth picks up. Whether this period will ultimately be viewed as an anomaly or as the beginning of a new era characterized by near-constant disruption and accelerated innovation remains uncertain. However, what is clear is that this 'new normal' shows no signs of going away anytime soon.
Yahoo
17-05-2025
- Business
- Yahoo
Trump Fumes After Walmart Cites His Policies For Price Hikes: 'STOP Trying To Blame Tariffs'
President Donald Trump publicly fumed at Walmart on Saturday over a problem he started, ranting on social media after the retail giant announced impending higher prices as a result of the president's steep international tariffs policy. Walmart's chief financial officer John David Rainey told CNBC in an interview published Thursday that Trump's levies against China are 'still too high,' even after the administration announced an agreement Monday to lower duties on Chinese imports from 145% to 30% for 90 days. 'We're wired for everyday low prices, but the magnitude of these increases is more than any retailer can absorb,' Rainey told the outlet. 'It's more than any supplier can absorb. And so I'm concerned that [the] consumer is going to start seeing higher prices.' While the specifics remain unclear, he noted prices will be 'certainly much more in June.' CEO Douglas McMillon made similar remarks during a Thursday earnings call. 'We will do our best to keep our prices as low as possible,' he said during the call, per CNN. 'But given the magnitude of the tariffs, even at the reduced levels announced this week, we aren't able to absorb all the pressure given the reality of narrow retail margins.' On Saturday, Trump railed against Walmart's probable price increases on his Truth Social platform. 'Walmart should STOP trying to blame Tariffs as the reason for raising prices throughout the chain,' he wrote. 'Walmart made BILLIONS OF DOLLARS last year, far more than expected.' He continued, 'Between Walmart and China they should, as is said, 'EAT THE TARIFFS,' and not charge valued customers ANYTHING. I'll be watching, and so will your customers!!!' The president has lauded his policy as a just crusade to revive American manufacturing, while economists warn it could spark a global recession, or worse. Trump first announced broad levies on what he called 'Liberation Day' on April 2, sparking massive upheaval in the markets. Trump said on the campaign trail last year that 'tariff' is 'the most beautiful word in the dictionary.' In an executive order issued on his first day back in office this year, he ordered his cabinet picks to prepare new tariffs for his administration to impose. Bill Maher Tears Into Trump For 'Ultimate' Double Standard: 'If Obama Did It...' Trump Discusses 'The N Word' On Fox News — And It's Not What You Think It Is Mike Pence Says It's A 'Bad Idea' For Trump To Accept Luxury Jet From Qatar Error while retrieving data Sign in to access your portfolio Error while retrieving data Error while retrieving data Error while retrieving data Error while retrieving data
