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Walmart and Home Depot say deflation is here, but not as much as expected

The big box retailers say deflation is now underway, but they anticipate price normalization in 2024.
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Big box retailers Walmart and Home Depot said goodbye to inflation and hello to deflation in Q4, and now they’re anticipating price normalization in 2024.

In their latest earnings calls on Tuesday, executives from both companies emphasized that price deflation continued through the quarter—just not as much as expected.

Walmart CEO Doug McMillon said prices for general merchandise continued to fall, though “the slope of the decline softened during Q4, meaning the prices are lower than a year ago, but not as much as the trend line would have suggested at the end of Q3.”

Food deflation similarly softened, he added, leading to prices that were “slightly higher than a year ago.”

This tracks with the most recent consumer price index, which showed US inflation rising more than many economists expected, even as it continues to slow.

Price normalization: At Home Depot, deflation in the price of commodities such as lumber and copper wire brought down average ticket sizes by 35 basis points, EVP of merchandising William Bastek told investors. But on the upside, “framing and panel lumber pricing experienced the most stable pricing levels during the quarter in some time.”

“We believe prices have essentially settled in the marketplace,” CEO Ed Decker said.

Overall, Home Depot is anticipating a modest 2024. The company expects revenue to increase about 1% in 2024 and comparable sales to drop about 1%. This marks an improvement from 2023, when sales dropped 3% year over year and comparable sales in the US fell 3.5%.

Volume-based approach: Walmart, for its part, appears well-positioned to benefit from a more normalized pricing environment. McMillon said the deflation in general merchandise prices presents “an opportunity to show off our merchant skills and to drive more units.”

In other words, Walmart may be looking to drive more sales volume rather than rake in more profits from inflation-fueled price increases.

Indeed, CFO John David Rainey said “we are not relying on raising prices to achieve our long range plan,” and “the improvement in gross profit is mostly related to the change in our business mix,” such as more revenue from advertising.

Retail news that keeps industry pros in the know

Retail Brew delivers the latest retail industry news and insights surrounding marketing, DTC, and e-commerce to keep leaders and decision-makers up to date.