The world’s largest retailer, Wal-Mart Stores (WMT), will cut prices on as many as 10,000 food and general merchandise items in an effort to reverse is slowing U.S. sales growth. The new pricing has already begun in the company’s 3,700 US stores.
Walmart was generally believed to be the company that benefitted most from the economic downturn, attracting new customers from a suddenly less wealthy middle class. The recovering economy has boosted sales at most other specialty retailers, like Gap (GPS) and Nordstrom (JWN) which reported boosts of 12% and 16.8% respectively in same-store sales for March. Direct competitors Target (TGT) and Costco Warehouse (COST) both reported a 10% jump in same-store sales in March.
Walmart no longer issues monthly sales figures, but it’s no secret that US sales are slowing down and part of the reason is that those recently-won-over middle class customers are returning to their previous favorites.
Walmart denies that it is losing these new customers, citing instead lower prices for food and electronics, two of the company’s largest revenue drivers. Company officials say the trend is reversing, which is a bit odd because Walmart is the primary reason the trend started in the first place.
The company emphasized electronics during the past holiday season and moved a lot of merchandise by keeping prices down. If Walmart is now seeing prices for electronics rise perhaps the conclusion it should reach is that if there’s no difference in price, maybe customers prefer to shop elsewhere.
By lowering prices on thousands of items, Walmart hopes to hold on to some of its new-found customers. To get to the new price points, Walmart appears to be doing what it always does — beat up on its suppliers. Well, perhaps that’s a bit of an exaggeration. But the company does admit that it is asking suppliers to lower prices in exchange for prime store locations. As Walmart’s chief marketing officer said of the store’s suppliers in the Wall Street Journal, “[T]hey are competing with each other to get space and visibility at Walmart.”
That’s how Walmart has been able to remain profitable even as revenues soften. Margins and profits grow at the expense of suppliers, who have no other choice but to take the lion’s share of the pain.
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