Wal-Mart announced today that it is rolling out a second round of pre-holiday price cuts this time on an additional 15,000 items. The cuts are 20% more than last year, according to Wal-Mart public relations.
Many of the analysts I spoke with dismissed the move as a marketing tool for the retailer to gain "mind share" (translation: have consumers think of shopping there first.) But even if Wal-Mart's message is something that the retailer wants Main Street to think of, WMT's aggressive pricing strategy is also something that some on Wall Street like to hear.
Why? (1) This season the markdowns are planned not panicked (less of a hit to margins) and (2) Some read this as a sign that Wal-Mart is returning to the original play book that helped it become the world's largest retailer. Goldman Sachs reports that in the past 4 months, Wal-Mart's price gap with its competitors has widened. Prices at Wal-Mart are 4% less than target and 21% less than at Kmart.
Analyst Adrienne Shapira upgraded Wal-Mart's stock in part because she says the low price positioning is an advantage in this increasingly tough consumer environment.
What does this do for consumers? Wal-Mart generated its own survey (with the help of Global Insight) of its impact on consumer budgets.While the headline is that Wal-Mart saved shoppers $652 dollars during last year's holiday season the way that figure was calculated uses a cumulative method of analysis that takes into consideration disinflationary pricing pressure on its competitors. Translation: it adds in the price cuts that Wal-Mart's suppliers and competitors are forced to take in order to keep with the world's biggest retailer.
Wal-Mart highlighted the study in its price cut announcement today, but I'll leave it up to readers to weigh in on Global Insight's Wal-Mart funded analysis. Is the $652 price saving amount accurate? You tell me.
I'll be posting a transcript of my interview with its author right here on this blog.
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