Wal-Mart plans major price cutting drive

12 April 2010

BENTONVILLE: Wal-Mart, the retail giant, is planning to cut the prices of a wide variety of products in its stores, as it seeks to reassert its position as offering the best value to shoppers.

The discounter typically saw like-for-like sales improve by more than 2% per quarter in the US over its 2009 financial year, as consumers traded down at the height of the downturn.

However, underlying totals have declined in each of its last three fiscal quarters, including a contraction of 2% in its most recent reporting period.

While some commentators have suggested shoppers are returning to their pre-recessionary habits, Wal-Mart has argued this trend has largely resulted from price deflation in the food and electronics categories.

Looking forward, it also believes that significant numbers of people will continue to face major challenges in 2010, which has led it to reduce prices on almost 10,000 products, largely in the form of consumer staples.

"We felt we needed to increase the intensity and excitement with our customer, especially the feeling that Wal-Mart has great deals," Stephen Quinn, Wal-Mart's chief marketing officer, said.

It will promote this "rollback" campaign with in-store marketing materials in some 3,700 outlets, with a particular emphasis on the fact that it provides "unbeatable" value.

This effort will be backed by ads run across a range of media, most of which will focus on how internal programmes, such as ensuring its delivery trucks are always full, mean lower prices for customers.

More broadly, Wal-Mart has been in discussions with brand owners regarding the costs they charge, and will reward those which lessen their demands by highlighting their products on its shelves.

"Obviously they are competing with each other to get space and visibility at Wal-Mart," Quinn said. "It forces them to sharpen their pencils a little bit and see what they can do to be a part of this."

A study released last month found that many Americans consider Wal-Mart to be the default destination when making purchases in a variety of categories, although it does not always command the most impressive levels of loyalty.

Craig Johnson, of Customer Growth Partners, the consultancy, predicted that the new strategy being adopted by the world's biggest retailer may be one way to boost retention rates.

"This will make customers say, 'if I go back to Kohl's and Kroger I may be missing deals at Wal-Mart,'" he argued.

Elsewhere, this high-profile communications drive could also serve to help the company stave off pressure from hard discount rivals like Aldi and Dollar General.

However, research from Charles Grom, an analyst at JP Morgan, last week revealed that a normal basket of goods at Wal-Mart was not noticeably cheaper at present.

Indeed, Grom found that the 31 items he regularly bought from one of the company's stores had actually increased in price by 2.3% when compared with the previous month.

Data sourced from Wall Street Journal; additional content by Warc staff