Wal-Mart Plans Lower, Low Prices for the Holidays
By George Anderson
Lee Scott is serious about slashing prices and driving consumers into Wal-Mart’s stores and onto its Web site this holiday season.
In a presentation at Prudential Equity Group’s consumer conference, Mr. Scott launched the opening salvo for the upcoming holiday season promising to lower prices to a point that consumers will not be able to pass up.
“We were extraordinarily aggressive,” he said. “I think it sets the tone for what the holiday is going to be like. We are going to be very aggressive.”
Last year, Wal-Mart’s early holiday season performance was off as competitors focused on discounting high profile products to draw traffic during the Black Friday weekend. Some criticized Wal-Mart for sacrificing revenues and share by not holding to the company’s traditional across-the-board low price strategy.
Bill Dreher, retail analyst with Deutsche Bank, told Reuters, “They’ve learned the lessons from last year and are intent upon not repeating the same mistakes.”
This year’s approach for the chain, said Mr. Dreher, is “going to be a combination of sharp pricing and cool new gifts, particularly electronics.”
Wal-Mart’s approach to the holiday season should be extremely worrisome to retailers who cater to lower-income consumers or those who focus primarily on price to attract shoppers, said Mr. Dreher.
Moderator’s Comment: How do you see the competitive market shaping up this holiday season? –
George Anderson – Moderator
The Darwinian march to lower margins will continue. Among the causes: (1) greater flood of cheap imports from Asia; (2) energy dollars spent by consumers, leaving them with fewer dollars for everything else; (3) higher housing costs (price and interest rate inflation) leaving consumers with fewer dollars for everything else; (4) total mainstream acceptance of Internet commerce by people of almost all ages and incomes; (5) excessive selling space square footage not being converted to alternative uses. As margins get squeezed more, retail bankruptcies and mergers will escalate, but the shakeout process will take years.
Fewer and fewer retailers will be able to defend their margins during this era of overcapacity, deflation, and excessive sameness.
After commenting yesterday that Target would be smart to stay the course by continuing to offer a value proposition, I find it ironic that today we are asked to address the wisdom of WM cleaning out the cupboards. Let them.
Does L’Oreal use the catchphrase “Because you’re worth it” in its advertising over there?
Is there anyone who advertises on the basis that people might enjoy the thing being sold or that it is a wonderful thing to own/use or something that a gift recipient might be pleased to receive and a giver proud to give? Or is all advertising based on being cheaper than anything else? How tired I am of that kind of thing. The whole argument that cheap is the be all and end all of shopping is just wrong and I do wish more people would stop and think about what they’re getting rather than what they’re allegedly saving. Setting a holiday tone that is proudly hailed as being aggressive and as far to the bottom of the barrel as they can conceivably go does not strike me as the least bit appropriate. Nor is sharp pricing and cool particularly attractive. Now is the time for some of those proud Christians to question the way their religion is being abused. This whole discussion just wants to make me cry.
Wal-Mart will, in fact, be more aggressive than ever, after last year’s burning. But shoppers, already hurt by gasoline prices, will have already started seeing their heating bills when Christmas selling season gets truly underway. That, to my mind, will slow things down, particularly in the Wal-Mart demographic. Overall, I see a tough season with sales flat or down slightly.
Based on these remarks, it should make for a very interesting season this year. I am glad that I am not a competing low price competitor as it sounds like margins are going to be hard to come by. Wal-Mart is tough enough competition under normal conditions, but if they are going to get aggressive it doesn’t sound like business as usual.
Other retailers may want to use this advance warning as a time to rethink their own strategy to see if they can fine tune things in view of this. It’s hard for me to think of too many retailers that have a very good chance of standing up to Wal-Mart on prices and surviving. Kmart certainly doesn’t have the strength or resources to do it.
Hopefully this is a message from the top that Wal-Mart is not going to lose sight of its core positioning with consumers after all. Disrupting that singularly successful pursuit with talk of “moving upscale” may have troubled more than just analysts and certain industry observers.
What? Wal-Mart is lowering prices so much that I will not be able to resist? “Resistance is futile” – yet Wal-Mart is the one studying Target’s “cool factor.” I have been resisting Wal-Mart for years and I suspect many other Target customers are too. When do I plan to go to Wal-Mart? Simple, when the prices are so low they are paying me to take their undifferentiated merchandise home.
Retailers “who cater to lower-income consumers or those who focus primarily on price to attract shoppers” no longer have much to worry about. There are hardly any of them left. This will probably be Kmart’s last Christmas. But, overall, I expect Christmas to be a huge success like it is every year.
Caution: we really don’t know what Lee Scott means. It may simply be a warning shot across the bow for competitors. Here’s another interpretation: “OK, if you think we’re going to stand by while you steal market share, think again. In fact, get serious for a second. We’re not going to just react; we’re going to Defcon 1.” So maybe Mr. Scott doesn’t really WANT to blow margin out the window by serious deep discounting off his already supposedly-low-prices.
Or maybe he believes that he can manage the cost of goods to support this aggressive pricing. For all we know, WM has built up a “war chest” of excess margin, just waiting to be used to jump start volume.
Having said all that, it’s my honest and true belief that it would be wonderful if retailers everywhere would adopt a pricing strategy, be consistent with that strategy, and stay with that strategy. If it proves to be ineffective, analyze and adopt a new one. But the willingness of retail to abandon strategy in the face of the first indication of bad news…..
Ah, there I go again.
I’m sorry? Even lower prices? This amidst the ever-echoing message from retailers – “We need to make more margin / you need to lower your selling prices to us so we can make more money!” And the all-favorite, “We won’t take a price increase.”
Striking a balance between sales and profits is commendable, though is this really the right approach?
What the article didn’t mention was that it’s usually the lowly manufacturer — be they Tier 1 or Tier 3 — who ends up taking a charge-back to offset the loss on the lower retail price.
How about something a tad bit more revolutionary like putting more SKUs on EDLP or bundling and promoting better with the manufacturers, vs. taking it all out on the retail price that’s often already low enough?
Maybe I’m just too bitter from my years of service to retailers and manufacturers.
The one thing that keeps me out of a Wal-Mart is I don’t want
to own a tablecloth, shower curtain, bedspread, towels, you name it, that everyone else in the United States also has in their home – at ANY price!
Finding unique items that suit the individual need is what I
am looking for, at a fair price.
Nothing will ever be able to replace creativity, certainly
not just a low price!
Well, Wal-Mart has short-sighted itself again. What happened to the upscale Target shopper desire, and… reducing its dependency on price?
Does the newly hired Pepsico marketing individual have a challenge not only bettering the shopper image of WM, but changing the culture and mind set of price is the only mechanism, to entice ALL shoppers today?
It may be said, WM has lost its competitive edge with its middle and low income shoppers, and therefore, the giant in the industry needs other areas to investigate for growth.
So it realizes consumer markeitng is needed. Bravo! And to the overall grocery industry, “times are a changing” and it means all must investigate and consider the value of marketing. Hmmmmm