Thursday July 22, 2010

Price Cuts, Promos Ineffective Amid Low Confidence

New York — Price reductions are having little effect on retailers’ profits, but shaky consumer confidence is limiting the ability of stores to raise prices without losing shoppers, according to a report.

The Nielsen Co. found retail prices in the consumer packaged goods industry during the 44 weeks ending June 12 were flat or down versus the year prior. Unit prices have been dropping since March 2009 and the number of items on promotion has gone up. Further, brands have increasingly undertaken promotions to stimulate sales and stem the growth of private label, the researcher reports.

Though retailers continue to use price cuts and promotions to draw shoppers, both dollar and unit sales are trending down in each of the past three four-week periods. As prices have fallen, so have same-store sales trends for retailers, particularly in the grocery channel, which has Nielsen claiming retail price wars are having a negative impact.

To counter this, the researcher suggests raising prices on selected items when justified, merchandise assortments for which stores have a competitive advantage, look for upsell opportunities and giving special attention to big spenders.