If Companies Are Earning Record Profits, Why Are They Passing Costs On to Consumers?
Inflation has been hurting Americans across the board, but not everyone is suffering. Big companies recently enjoyed their biggest year of gains since the 1950s. According to new data from the Commerce Department, U.S corporations saw profits soar 35% in 2021.
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Here’s a look at 8 mega companies that raked in mega revenue as of late:
- Amazon: Net sales increased 15% to $127.1 billion in Q3 2022.
- Apple: Set record revenue of $90.1 billion in Q3 2022, up 8% year-over-year.
- Costco: Net sales for the 52-week fiscal year ending Aug. 28, 2022, increased 15.2 percent (to $70.76 billion), from $61.44 billion last year.
- Home Depot: Revenue reached $43.79 billion vs. $43.36 billion that was expected in Q2 2022.
- Walmart: U.S comp sales grew 6.5% and 11.7% on a two-year stack in Q2 2022.
- Sam’s Club: Comp sales increased 9.5%, and 17.2% on a two-year stack. Membership income increased 8.9% with member count at an all-time high in Q2 2022.
- Kroger: Total company sales were $34.6 billion in Q2 2022, compared to $31.7 billion for the same period last year. Excluding fuel, sales increased 5.2%.
- CVS: Total revenues increased to $80.6 billion in Q2 2022, up 11.0% compared to prior year.
Rather than reaping the benefits of corporations’ huge profits, American consumers are paying more than ever. Markups are higher than they’ve been since the 1950s, according to a June brief from Roosevelt Institute’s Mike Konczal and Niko Lusiani.
The average markup reached 1.72 (meaning 72% over marginal cost) in 2021, up from an average markup of 1.56 in the 2010s — and 1.26 during the period spanning 1960 through 1980.
In these painful times of inflation, why are companies reeling in such tremendous profits? And what can consumers do about it?
Inflation Is a Friend to Big Corporations
“In part, companies are turning such big profits because of inflation,” said Christopher Blake, assistant professor of economics at Oxford College of Emory University. “Inflation is inherently distortionary as rising prices affect some markets more than others. Knowing this, companies try to predict how the prices they face will evolve and alter the price of their products in accordance with that. Earlier this year, we heard a lot about supply chain issues, increased labor costs, and rising gas prices. Businesses built this into their forecasts and have been raising prices to account for it.”
And businesses can keep prices high — higher even than is required to simply maintain previous profit margins — because of the high consumer demand for their products.
What Consumers Can Do To Avoid Inflationary Pressure
Here’s where consumers can leverage some power: “An easy way to pull prices back down is to stop demanding as much,” Blake said.
But this isn’t necessarily the best move from a big picture perspective.
“Reduced demand means fewer purchases and, in aggregate fashion, could propel the economy towards recession faster,” Blake said.
A more reasonable approach, perhaps, is for consumers to get more aggressive in how they save. Research shows that shoppers will shell out substantial amounts of cash to buy their favorite household name item — even if it’s more than what they paid in the past. Going generic is an easy way to tackle this issue.
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Research has also found that consumers have become somewhat complacent. American households are clipping about half as many coupons now as they were in 2006. Going back to tried-and-true savings strategies makes for a smarter, more efficient consumer.
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