Target CEO Says Retailers Can’t Price Gouge in Competitive Industry

Vice President Kamala Harris recently proposed the first-ever federal price gouging ban on the food and grocery industries.

The entrance of a Target store in Ellicott City, Md., on March 24, 2024. Madalina Vasiliu/The Epoch Times

In a highly competitive environment, retailers cannot engage in the practice of price gouging, according to Target CEO Brian Cornell.

Vice President Kamala Harris recently proposed the first-ever federal price gouging ban on the food and grocery industries. Harris and other White House officials have claimed that businesses are taking advantage of the economic climate and overcharging customers by sharply raising prices to pad their profits.

Cornell dismissed these assertions, telling CNBC’s “Squawk Box” on Aug. 21 that Target is “in a penny business.”

“It’s a very competitive space,” he said, explaining that the industry faces small profit margins.

The Target executive noted that retailers must be responsible to consumers because they possess the power to seek lower prices and other products by scanning their phones or visiting other stores.

The Minnesota-based company has joined the crowd of other retailers that have responded to shoppers’ concerns.

In May, Target announced that it would cut prices on about 5,000 essential everyday items, such as diapers, paper towels, fresh fruit and vegetables, coffee, and pet food, in order to bolster sales and generate higher traffic.

The discounts have appeared to be successful, with in-store and web traffic rising by 3 percent in the previous quarter. Target’s net profit margin—the percentage of profit a business produces from its total revenue—was up by 2.4 percent year-over-year.

While many retail outfits are attempting to bring prices down amid more cost-conscious shoppers and slowing consumer demand, Walmart stated that inflation remains “more stubborn,” particularly for dry groceries and processed foods.

“We have less upward pressure, but there are some that are still talking about cost increases, and we’re fighting back on that aggressively because we think prices need to come down,” Walmart CEO Doug McMillon said on a second-quarter earnings call on Aug. 15.

Debate About Price Gouging

Earlier this year, the current administration created a joint Federal Trade Commission and Department of Justice task force to combat what officials say are illegal and unfair corporate pricing for food, rent, pharmaceuticals, and other goods and services.

The debate persists as to whether corporate price gouging has kept inflation sticky and stubborn—the Federal Reserve Bank of Atlanta’s sticky-price consumer price index (CPI) is up by 4.1 percent year-over-year.

Fed officials and economists have expressed doubt that corporate gouging has contributed to the rampant price inflation over the past few years.

This past spring, San Francisco Fed economists published a paper that concluded that the alleged price gouging was not a main factor for the inflationary pressures that have been prevalent since 2021.

“An increase in pricing power would be reflected in price-cost markups, leading to higher inflation; likewise, a decline in pricing power and markups could alleviate inflation pressures,” they wrote. “The aggregate markup across all sectors of the economy, which is more relevant for inflation, has stayed essentially flat during the post-pandemic recovery.”

Chicago Fed President Austan Goolsbee told CBS’s “Face the Nation” that various “dynamics at play” can affect prices and wages.

“If you look at any given moment, that markup sort of the difference between what’s happening to prices and what’s happening to costs that can vary a lot over the business cycle,” Goolsbee said. “So I just caution everybody over concluding from any one observation about markups.”

The producer price index—a metric that measures prices paid for goods and services by businesses—has outpaced the CPI by 25 percent to 20 percent since January 2021.

Fed Chair Jerome Powell, too, dismissed the idea that corporate price gouging is contributing to inflation.

“It’s been very hard to track a connection with earnings and things,” he said in July when he appeared before the House during his semiannual monetary policy report.

This year, lawmakers have stepped up efforts to fight what they deem is price gouging and shrinkflation—the act of raising prices by shrinking product sizes.

In February, Sen. Sherrod Brown (D-Ohio) introduced legislation to grapple with these issues, alleging that “corporations used supply shocks from the pandemic and war in Ukraine as an excuse to raise prices, and they keep raising them.”

In a letter to Kroger CEO Rodney McMullen, Sens. Elizabeth Warren (D-Mass.) and Bob Casey (D-Penn.) accused the supermarket chain of price gouging and hurting consumers.

“It is outrageous that as families continue to struggle to pay to put food on the table, grocery giants like Kroger continue to roll out surge pricing and other corporate profiteering schemes,” the lawmakers wrote.

A growing number of companies have embraced electronic shelving labels as part of broader dynamic pricing strategies.

Proponents say electronic shelving labels can lower customers’ prices over time because retailers can automate pricing updates and exploit the most recent data on a centralized pricing platform. Critics claim they will increase prices for consumers because dynamic pricing could help companies charge more for a product during times of the day when it is in higher demand.

Meanwhile, the public seems to support the flood of price-gouging claims.

A February Navigator Research study highlighted that 85 percent of Americans say “corporations being greedy and raising prices to make record profits” is a cause of inflation. A June 2023 YouGov survey showcases similar results, with most Americans blaming “large corporations seeking maximum profits” for high inflation.