When Vice President Kamala Harris unveiled her economic plan last week, one point stood out to many – her plan to crack down on price gouging. This week, Target CEO Brian Cornell defended retailers against claims that they’re artificially inflating prices.
“We’re in a penny business,” Cornell said during an interview with CNBC’s “Squawk Box” when host Joe Kernen asked whether Target has benefitted from price gouging or if the practice has contributed to high inflation. Cornell noted that retail is a more competitive space with smaller profit margins than many other industries.
However, something is keeping prices out of step with wages. According to Yahoo Finance, grocery prices are up 21% since President Joe Biden took office. During that time, wages increased by just 17%, not enough to keep up.
“To hunt for price gouging in the food industry, Yahoo Finance looked at profit and cost data in eight different sectors that represent the entire food industry, including agriculture, food production, distribution, and retail. This includes big names everybody has heard of,” such as Walmart, Target’s big box competitor, and fast food staple McDonald’s.
It did find evidence of rising profits post-pandemic in the consumer staples retail industry, but not as much as the agricultural products and services industry. Those agricultural profits increased 129%, per the report.
While Target did beat Wall Street’s expectations for earnings this week, Cornell said the company’s success was grounded in offering budget-conscious consumers reasonable prices. Indeed, earlier this year the company announced it would slash prices on items. Target also offered discounts to customers who brought in old jeans and has become a destination for collectors of surprisingly in-demand $5 bird décor.
According to an earnings report, Target’s second quarter comparable sales increased 2%, at the high end of the company’s expectations. Traffic also grew 3% in the second quarter compared to the prior year.
CNBC said that other retailers, including Home Depot, Walmart and Macy’s, have reported over the past two weeks that “consumers are being picky about where they’re spending.” Though inflation is still impacting certain categories, such as dry goods, Walmart CEO Doug McMillon also said in a recent earnings call cited by CNBC that the company is “fighting back on that aggressively because we think prices need to come down.”
So far, we don’t have many details about Harris plans to attack price gouging. What we know is that she plans to support a federal ban on price gouging food.
“As attorney general in California, I went after companies that illegally increased prices, including wholesalers that inflated the price of prescription medication and companies that conspired with competitors to keep prices of electronics high. I won more than $1 billion for consumers,” said Harris, now the official Democratic nominee for president, last Friday. “So, believe me, as president, I will go after the bad actors. And I will work to pass the first-ever federal ban on… price [gouging] on food.”
While some economists have bristled at the proposal, Zephyr Teachout – a professor of law at Fordham Law School – argued in favor for it in a piece for The Atlantic.
“What Harris actually proposed was neither radical nor new – and it certainly wasn’t price controls. In fact, almost every state already has a law restricting at least some forms of price gouging,” Teachout explained. “Although Harris has not specified the exact design of her proposal, one hopes that it would follow the basic outline of state-level bans: forbidding unwarranted price hikes for necessary goods during emergencies.”
Sometimes those laws end up applying to wholesalers rather than household-name stores like Target and Walmart. Teachout offered an example: “Early in the coronavirus pandemic, some New York City residents complained that grocery stores were charging exorbitant prices for Lysol. But because those stores were merely passing along price increases from their distributor, they didn’t get in trouble. Instead, the state pursued a case against the wholesaler, which agreed last year to pay $100,000 in penalties and restitution.”
Teachout said a federal law would “very rarely need to be used,” and would simply hold big corporations to an expectation of not exploiting disaster for profit.