Vice President Kamala Harris stirred up a hornet’s nest recently when she accused American companies of price gouging and vowed to impose price controls on businesses if elected president. Economists and editorial boards pushed back, explaining why price gouging isn’t what’s causing inflation and how price controls would make a bad economy even worse. Some retailers and manufacturers defended themselves, arguing that they were also victims of soaring costs.
It’s not difficult to test whether the companies’ claims are accurate. Most of America’s biggest retailers, those with significant brick-and-mortar operations around the country, publicly report extensive financial information to shareholders. If they somehow were profiting wildly from an inflationary environment, their filings would show it. But the opposite has happened. America’s biggest, most powerful sellers have struggled with rising costs from suppliers, who face greater labor and materials costs themselves. Retailers’ profits have been on a roller-coaster ride, and most recently their margins have shrunk. This hardly suggests that they’re gouging consumers.
The real story: excessive government pandemic lockdowns and extended unemployment benefits during Covid created widespread shortages of materials and labor that helped send prices soaring. That has left even the country’s biggest, most successful retailers—like Walmart, Kroger, and Target—scrambling to recover.
Consider what these retailers are spending on buying the goods they sell, and what kinds of revenues they’re getting in return. Walmart has seen sales climb 13.3 percent in three years, but the prices it paid for those goods rose 14.2 percent in that time, which means that its gross margins have declined. Target has had even rougher going, thanks to a sharp rise in operating costs two years ago and then a big slump in sales. Its revenues have increased less than 1 percent net in three years, while the cost of acquiring and selling its goods is up 3.7 percent in that time. Kroger has managed to keep its sales growing at nearly the same rate as the increase in cost of goods it buys and then sells—but in an inflationary environment, where you’re paying more for everything, including labor, that still means that Kroger’s profits sharply declined last year.
None of this supports the idea that giant corporations are somehow profiting from inflation by dunning their customers. If anything, shareholders, who suffer when profits are at risk, face the biggest threat. With added cost pressures and consumers pulling back, Target’s net income in the past three years has fallen by two-thirds, to $4.1 billion. Walmart’s income slumped by one-fifth in 2023 to $11.7 billion; it reversed its decline in fiscal 2024, boosting earnings to $15.5 billion. Still, Walmart didn’t accomplish that by somehow selling goods for a lot more than it paid for them; it did it by curbing the growth of its own spending.
Harris’s defenders are unsympathetic to the challenges big companies have faced in this volatile economic environment. Some advocates for price controls, for instance, point to that $11.7 billion Walmart profit as proof that it must be skinning customers. Not so. Walmart is the world’s largest firm, with $648 billion in revenue. Its profit margin is strikingly small considering that it operates 10,500 stores worldwide and a $100 billion e-commerce business. A small mistake in merchandising—say, stocking the wrong kids’ clothing styles for back-to-school sales, or emphasizing brand names when customers are turning to generics—can easily sink profits. Just a few years of such mistakes could drive the business into oblivion. It’s a testament to Walmart’s efficiency and technological sophistication that it’s able to adjust its operations so consistently to avoid, or bounce back from, such mistakes. And even if, in some mad display of corporate benevolence, the company decided to give all its profits back to consumers in the form of price cuts, Walmart is so big and earns so little on its massive sales that the move would hardly be noticed in the price of individual items.
The impact of rising prices on the bottom lines of these companies is one reason why America’s biggest retailers often exert a moderating influence on prices—and restrain other companies in the supply chain. Big retailers use their influence, which they acquire because of the valuable shelf space they offer vendors, to discourage immoderate price increases. Walmart, for instance, began speaking out against manufacturer price increases in late 2022, as it watched its own stores struggle to sell higher-priced goods. The CEO of the company that manufactures Schick razors, Rod Little, told Reuters that the message from Walmart was, “our consumer is challenged, we’re going to be looking out for consumers, so you’re going to have to have really good reasons if you’re going to price up from here.” Walmart also told brand-name product makers that the company would be emphasizing selling its own generic products to consumers if vendors continued to increase the cost of brand-name goods.
Of course, it’s not corporate benevolence but the American consumer that drives this attitude on the part of big businesses. When supply-chain shortages and rising labor costs during Covid drove up prices, consumers were caught temporarily with few options because of the extraordinary market disruptions. In time, consumers began trading down and cutting back. Sellers like Walmart have since become alarmed that their customers are abandoning them for lower-priced stores and cheaper goods. That’s led to frantic efforts to contain the damage from price hikes, including demanding that their own vendors find ways to reduce costs.
Big firms like Walmart and Target, which benefit far more from prosperity than they do from the turmoil of price hikes and product shortages, are victims of government-induced economic pain. They, too, have been gouged.
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