Companies losing pricing power after years of unbridled spending

After years of unbridled consumer spending on everything from home improvement to dream vacations, some companies are now finding the limits of their pricing power.

Shipping giant FedEx last week said customers have shied away from speedier, pricier shipping options. Airlines including Southwest discounted off-peak fares in the fall. The likes of Target and Cheerios maker General Mills have cut their sales outlooks as more consumers watch their budgets.

It’s a shift from the recent years when consumers spent at a breakneck pace — and at high prices — lifting corporate revenues to new records. But faced with weakening demand, more price-sensitive consumers, easing inflation and better supply, some sectors are now forced to find profit growth without the tailwind of price hikes.

The answer across industries has been to cut costs, whether it’s through layoffs or buyouts, or simply becoming more efficient. Executives have spent the past several weeks selling these cost-cutting plans to Wall Street.

Nike last week lowered its annual sales growth forecast and unveiled plans to cut costs by $2 billion over the next three years. Companies including Spirit Airlines, hit by a slowdown in domestic bookings and higher costs, offered salaried workers buyouts, while toymaker Hasbro announced layoffs of 1,100 employees as it struggles with lackluster toy sales.

“I think companies are better at controlling costs than maintaining pricing power,” said David Kelly, chief global strategist at J.P. Morgan Asset Management.

“Goods companies don’t have the pricing power they did in the pandemic, and some in the hotel and travel [industries] — they don’t have the pricing power they did in the immediate post-Covid,” he added.

Sales growth for companies in the S&P 500 is on track to average 2.7% this year, according to mid-December analyst estimates posted by FactSet. That’s down from an average of 11% growth in 2022 over the year earlier. Meanwhile, net margins are forecast to fall only slightly year over year to 11.6% from 11.9%, FactSet said.

“Companies are extraordinarily committed to maintaining margins,” said Kelly.

FedEx, for example, despite its weaker sales forecast,…