October 19, 2007
Holiday Price War Gets Early Start
The National Retail Federation is projecting sales will grow four percent during the upcoming Christmas holiday sales period but that retailers should expect to battle for every sale they get as a variety of economic conditions, including a slumping housing market, high energy costs and other factors, cause a wide percentage of the population to spend more judiciously than in the recent past.
Wal-Mart as it has done before is seeking to gain an early edge moving into the holidays by announcing a broad price rollback. Last year, the retailer focused on toys and consumer electronics to make a statement. This year, that statement has become broader with price reductions to include other categories such as grocery, home and apparel.
According to Wal-Mart, it has cut prices on 15,000 items or 20 percent more than at this point last year.
| Items on Wal-Mart’s Price Rollback List | |
|
• Fisher Price Learning Kitchen – was $64.88, now $54.88 |
|
| • Assorted “Be Bratz” Dolls – was $29.94, now $19.93 | |
| • Fisher Price Smart Cycle – was $99.88, now $89.88 | |
| • Havoc Heli – was $29.97, now $24.74 | |
| • Motts Applejuice – 2 for $3 | |
| • Duncan Hines Box Brownies (19.8-21 oz.) – 2 for $2 | |
| • Hillshire Farm Cocktail Smokies – 2 for $5 | |
| • Progresso Soups – 2 for $3 | |
| • Hershey’s Baking Pieces (8-12 oz.) – 2 for $3 | |
| • Hanes Ladies Fleece Crew top or pants – $5 each | |
| • Hanes Boys and Girls top or pants – 2 for $9 | |
| • Black & Decker 12 Cup Digital Coffee Maker – was $29.92, now $24.96 | |
| • Black & Decker 4-slice toaster – was $29.97, now $24.88 | |
| • GE 1.1 cubic foot microwave – was $64.72, now $59.96 | |
| Source: Wal-Mart Stores, Inc. | |
“In an effort to help stretch the dollar, we’re giving customers an early start on holiday savings with even more targeted price cuts to come,” said Bill Simon, executive vice president and chief operating officer, Wal-Mart. “These rollbacks are just the start of special values we’ll unveil now through December to remind people that our prices will remain unbeatable and you will save money on great products here.”
While the chain is counting on price reductions on key items to increase customer traffic, retail observers say Wal-Mart will need to find ways to protect margins at the same time.
Charles Grom, an analyst with JP Morgan, told Reuters, “At the end of the day I’m a little bit concerned that this sounds great, but you only make money on these programs if you can get the volume throughput to keep the gross profit margin dollars; and I’m not so sure they can.”
Interestingly, while Wal-Mart was going public with prices on a number of its rollback items (see chart), the company was threatening legal action against websites that in the past have posted sale prices before the retailer’s ads hit.
The law firm of Baker Hostetler, which represents Wal-Mart, has sent a notice to operators of websites including Gottadeal.com and Dealtaker.com, which read: “It has recently come to our attention that you and/or your company may potentially obtain possession of and untimely release Wal-Mart’s sales circulars, advertisements or other information prior to their authorized release dates. To the extent that the methods of acquisition or use include criminal activity, criminal penalties may also apply.”
John Simley, spokesman for Wal-Mart, said the retailer is focused on stopping the leakage at all levels.
“We have tried other methods with inadequate results,” he told CNNMoney.com. “We believe that the unauthorized distribution of [Wal-Mart ads and circulars] is a violation of our legal rights. This needs to be respected.”
Brad Olson, the founder of Gottadeal.com, said, “I don’t understand why they would do it… Every year Wal-Mart’s ad is the most anticipated one on our site. We get 2 million clicks on the ad between October and November. This is great publicity for Wal-Mart.”
Discussion Questions: Will this holiday season be more price competitive than previous years? Will Wal-Mart gain an advantage from its early start? Does the chain appear to have altered its approach any from last year? Is the company helping or hampering its efforts by threatening legal action against sites that publish prices before they officially go public?
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The psychology is that the economy is bad and that it will get worse in the near future so retailers are reacting to that by adjusting holiday pricing accordingly. Should make for an interesting Q4.
There are a lot of angles to this question, but the fundamental point is that somehow corporate information that should remain confidential is getting out in the public domain. Wal-Mart has a low price image to maintain, probably more so than other retailers, so I understand why they are sensitive to the market and eager to get their message out. Do I think a general price war is here for the holidays? Who knows, but obviously a skirmish has begun. I think that in general, people will be willing to procrastinate and while the early publicity will get retailers in the news it does not mean that margins must remain low to the end.
As seems to happen every year, the level of price competitiveness is likely to become more even more pronounced this year as mass retailers of all stripes seek to buy market share. The problem is that, in the end, everybody sacrifices precious margin in the effort, and rather than the strong getting stronger while the weak get weaker, everybody seems to get a little weaker.
It’s the slippery slope of competing on price, and yet for mass market items it’s the only game in town. And as surely as we see the price wars in October, November and December, we’ll also see the stories about retail earnings shortfalls, mergers and bankruptcy filings come January, February and March. ‘Tis the season.
Wal-Mart gets good publicity every Fall by announcing price reductions. It would be surprising if they did NOT announce price reductions. Attempting to censor web sites that give away sales-building publicity just makes Wal-Mart look like a bully. And it gives those sites even more publicity. The dream of every obscure web site owner: free national publicity courtesy of Wal-Mart!
I think there will be more price pressure this year, but it will be more from nervous retail execs than consumer behavior. With predictions of a subdued holiday, retailers will be worried about not getting their share of the meager increase. Wal-Mart needs a big holiday so it’s no surprise the move they’ve made. I think what will be interesting is what some of the department stores and others in the middle will do. Will they be able to resist giving up margin for volume? If I was a betting man, I would say they’ll be pulling that sale trigger a lot this holiday season.
I can see the rationale for Wal-Mart threatening legal action against sites that publish prices before they officially go public. Using these sites enables consumers to cherry pick specials and it definitely hurts the retailer’s bottom line. But as most companies can attest to, you shut down one site and three more pop up. I’d focus more on fixing the internal issues that is enabling the leaks and less about bullying the website owners.
I’m not sure you will see price competition dramatically different from last year…after all, the fight for market share among department stores, discounters, electronics and toy specialists, and so on gets more intense every year. However, “price wars” will get plenty of press coverage this year in response to the very real economic issues putting pressure on consumer spending: high oil prices, the housing market, political uncertainty, and so on. Retailers’ push toward exclusivity is aimed in part at protecting them against price competition, so a lot of the pricing pressure will result equally from inventory pressures as from outside causes.
Threatening legal action again websites for posting prices is petty and immature. If Wal-Mart is so concerned about keeping the prices off of these sites then they should not be pre-releasing their circulars. In retail, if more than one person knows, its not a secret. A big company like Wal-Mart needs to show some class and just suck it up and stop crying.
Wal-Mart will be the leader in Christmas sales. No one is going to out-sell them. With Wal-Mart being the largest and most likely the lowest priced retailer, they will have the advantage, no matter when they start their Christmas season.
Keep in mind when Wal-Mart only shows a 1% increase in same store sales, the same dollar amount at another retailer might be 3% or more. That’s because Wal-Mart tends to over-perform with regards to sales per square foot.
I think it will be more competitive, and I think that growth is likely to be a couple percentage points lower than last year. In addition to the structural, economic issues in play, the warmer weather in September will also lead to a lot more discounting to move fall merchandise out….
I would also expect some trading-down from the mid-market chains to the discounters.
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The psychology is that the economy is bad and that it will get worse in the near future so retailers are reacting to that by adjusting holiday pricing accordingly. Should make for an interesting Q4.
There are a lot of angles to this question, but the fundamental point is that somehow corporate information that should remain confidential is getting out in the public domain. Wal-Mart has a low price image to maintain, probably more so than other retailers, so I understand why they are sensitive to the market and eager to get their message out. Do I think a general price war is here for the holidays? Who knows, but obviously a skirmish has begun. I think that in general, people will be willing to procrastinate and while the early publicity will get retailers in the news it does not mean that margins must remain low to the end.
As seems to happen every year, the level of price competitiveness is likely to become more even more pronounced this year as mass retailers of all stripes seek to buy market share. The problem is that, in the end, everybody sacrifices precious margin in the effort, and rather than the strong getting stronger while the weak get weaker, everybody seems to get a little weaker.
It’s the slippery slope of competing on price, and yet for mass market items it’s the only game in town. And as surely as we see the price wars in October, November and December, we’ll also see the stories about retail earnings shortfalls, mergers and bankruptcy filings come January, February and March. ‘Tis the season.
Wal-Mart gets good publicity every Fall by announcing price reductions. It would be surprising if they did NOT announce price reductions. Attempting to censor web sites that give away sales-building publicity just makes Wal-Mart look like a bully. And it gives those sites even more publicity. The dream of every obscure web site owner: free national publicity courtesy of Wal-Mart!
I think there will be more price pressure this year, but it will be more from nervous retail execs than consumer behavior. With predictions of a subdued holiday, retailers will be worried about not getting their share of the meager increase. Wal-Mart needs a big holiday so it’s no surprise the move they’ve made. I think what will be interesting is what some of the department stores and others in the middle will do. Will they be able to resist giving up margin for volume? If I was a betting man, I would say they’ll be pulling that sale trigger a lot this holiday season.
I can see the rationale for Wal-Mart threatening legal action against sites that publish prices before they officially go public. Using these sites enables consumers to cherry pick specials and it definitely hurts the retailer’s bottom line. But as most companies can attest to, you shut down one site and three more pop up. I’d focus more on fixing the internal issues that is enabling the leaks and less about bullying the website owners.
I’m not sure you will see price competition dramatically different from last year…after all, the fight for market share among department stores, discounters, electronics and toy specialists, and so on gets more intense every year. However, “price wars” will get plenty of press coverage this year in response to the very real economic issues putting pressure on consumer spending: high oil prices, the housing market, political uncertainty, and so on. Retailers’ push toward exclusivity is aimed in part at protecting them against price competition, so a lot of the pricing pressure will result equally from inventory pressures as from outside causes.
Threatening legal action again websites for posting prices is petty and immature. If Wal-Mart is so concerned about keeping the prices off of these sites then they should not be pre-releasing their circulars. In retail, if more than one person knows, its not a secret. A big company like Wal-Mart needs to show some class and just suck it up and stop crying.
Wal-Mart will be the leader in Christmas sales. No one is going to out-sell them. With Wal-Mart being the largest and most likely the lowest priced retailer, they will have the advantage, no matter when they start their Christmas season.
Keep in mind when Wal-Mart only shows a 1% increase in same store sales, the same dollar amount at another retailer might be 3% or more. That’s because Wal-Mart tends to over-perform with regards to sales per square foot.
I think it will be more competitive, and I think that growth is likely to be a couple percentage points lower than last year. In addition to the structural, economic issues in play, the warmer weather in September will also lead to a lot more discounting to move fall merchandise out….
I would also expect some trading-down from the mid-market chains to the discounters.