Wal-Mart Revives Price-Cut Strategy

Under pressure from Wall Street and hungry for a big win at holiday, Wal-Mart Stores Inc. is signaling it will focus on prices.

Under pressure from Wall Street and hungry for a big win at holiday, Wal-Mart Stores Inc. is signaling it will focus on prices.

The world’s largest retailer said Thursday that it reduced prices this week on 15,000 items, including apparel, toys, electronics and holiday food supplies. The company said additional cuts are coming, for a total of 20 percent more than last year.

“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,” said Bill Simon, Wal-Mart U.S. executive vice president and chief operating officer.

Starting Oct. 1, Wal-Mart dropped prices on many toys expected to be popular for Christmas.

“Wal-Mart’s bread-and-butter is reducing prices on high-velocity items,” said Lazard Capital analyst Todd Slater.

Slater said Wal-Mart needs to pay attention to both low prices and to merchandise appeal.

“Both strategies are complementary,” he said. “Even affluent customers appreciate low prices….At the same time, Wal-Mart should continue to improve the quality quotient in discretionary items like apparel and home.”

The $345 billion retailer can cut prices sharply but still make a profit because of its ability to generate enormous volume through its more than 4,000 U.S. stores.

Wal-Mart is likely saving more dramatic moves for Black Friday — the traditional kickoff to holiday during the Thanksgiving weekend — and the weekends before Christmas. The latest discounts aren’t radical. In fact, some are already familiar to shoppers. Wal-Mart will offer Hanes ladies fleece crewneck tops and pants for $5 each, the same price it offered several years ago. The retailer sells hundreds of thousands of units of these basic sweatsuits, sometimes right out of cardboard boxes. It is also offering Hanes’ children’s tops or pants, two for $9.

Over the last several years, Wal-Mart’s desire to appeal to higher-income customers has caused miscues at holiday, such as a 2004 plan to be less promotional on Black Friday, a strategy that flopped.

This year Wal-Mart has been reaffirming price leadership and touting a new slogan: “Save people money so they can live better.”

This story first appeared in the October 19, 2007 issue of WWD.  Subscribe Today.