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Wal-Mart's Early Price Cuts: Panic Move Or Smart Biz?

Cut early, be aggressive and roll out gradually. That's Wal-Mart's price strategy for the holidays. And the marketing team at Wal-Mart follows that dictate when it unveils some big ticket price cuts this Friday--more than 2 weeks ahead of "Black Friday," which has traditionally been the kickoff of the holiday shopping season.

Whenever Wal-Mart does anything, the media takes notice and investors' ears perk up. Why? Oftentimes they are a game changer when it comes to pricing and they influence how other industries do business. Their price cuts do feed competition with other retailers selling similar products. Best Buy,Target,Costco and BJ's are obvious competitors and even followers at times.

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So what’s on the product list? The first known cut will be to Acer laptops that will sell for $348. Wal-Mart claims that's the first time that a one gigabyte computer has broken the $400 price limit. This is the first price cut to a big ticket item. And tomorrow, four other product rollbacks will be announced on walmart.com. Still, I've got to say that so far we haven't seen too many big surprises in the items that Wal-Mart is cutting. We knew that they would continue to roll prices down through Christmas.

Cutting prices on toys at the beginning of October was a move by Wal-Mart that made the industry sit up and take notice. And the further cuts on 15,000 items was duly noted by analysts. But we haven't seen (and haven't heard from Wal-Mart) just what material difference these markdowns will have on the bottom line.

The fact that Wal-Mart would disclose that nitty gritty was a sore point at last week's analyst meeting. Investors want to know just what these promotions will do to profit margins and whether they really feed a spike in traffic or sales. Marketing wise, the message does seem to be effective.

We’ve been telling you that Wal-Mart was going to cut more as we get closer to the holiday. Today, they confirmed that rollbacks will be announced each week. Here is the key: the price cuts are planned, not a result of panic. Across the board, retailers have had fair warning that spending is softening and they have to manage inventory, and manage margins more carefully in order to survive the level of promotional cuts they're going to have to take this year.

And a word of warning on another subject: many sources are telling me that retailers will not make their numbers when they report same store sales next week.

Questions? Comments? retaildetail@cnbc.com

Retail

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