US Retailers' Lure Cash-strapped Customers With Products Under $5

Retailers have a new sweet spot: products that cost $3 to $5.

Target said on Tuesday that it would be stocking its shelves with more products priced under $10 as the retailer tries to appeal to more cost-conscious consumers dealing with once-in-a-generation inflation.

This comes a little more than a year after dollar store chain Dollar Tree said it would launch more discretionary products including seasonal items and apparel priced between the $3 and $5.

Americans are shifting their shopping habits and hunting for bargains in the face of unrelenting inflation. Many, including high-income households, are buying more store-label brands as budgets stretch in the face of higher interest rates.

Minneapolis-based Target, which has nearly 2,000 stores, reported a quarterly profit that beat Wall Street's expectations for the first time in a year, as it shifted its focus to selling more food and lower-priced items under its higher-margin private-label brands including Favorite Day, Good & Gather and Mondo Llama.

Target generates more than $30 billion in sales from its 48-owned brands, the company disclosed in a presentation on Tuesday adding that these brands grew faster than overall sales in 2022.

Now it plans to double down on its in-house products.

Target said it plans to launch or expand more than 10 owned brands, adding thousands of new products. The majority of these items will be sold for $3, $5, $10 and $15, according to the retailer.

The move comes after Target saw higher sales of $3 ornaments, $5 candles and $10 throw pillows, Christina Hennington, the company's chief growth officer, said on a call on Tuesday.

It also follows discount chain Five Below Inc's plans to open more than 200 new stores in 2023 and convert 400 existing stores to its "Five Beyond" format, which sells items priced above its $5 threshold.

CFRA Research analyst Arun Sundaram said Target's motive to lower prices was to drive more traffic to its stores.

"It is nice to see Target invest in own brands and use that as a way to keep differentiating themselves against Walmart and Kroger," he said.

Consumer prices rose at a more rapid monthly pace in January, the Labor Department reported earlier this month. The Consumer Price Index rose 0.5% in January, as prices for food, fuel and apparel accelerated at a more rapid rate. In the 12 months through January, inflation was 6.4%, compared to 6.5% in December.

Walmart executives said last week that they have seen stretched consumers gravitate towards private label, such as its Great Value and Equate brands.

Target's private-label brands are generally more expensive than at Walmart, a Reuters review of their online prices showed. In one example, a 64-ounce Great Value bottle of orange juice sells for $2.98 on Walmart.com compared with $3.69 for Good & Gather orange juice in the same size.

Dollar Tree, which dropped its long-standing $1 policy in November 2021, said last year its focus to offer more $3 to $5 items was working for its products that competed against those in grocery and drugstores, and led to its first traffic increase in three years during its third-quarter ended October 29 last year.

The Virginia-based chain said it was planning on adding more $3 and $5 items to its fleet of 16,000 stores in the years ahead.