NO CIRCULAR ISSUED FOR JULY AT WAL-MART

Byline: Mark Tosh

NEW YORK--Wal-Mart has dropped its July sales circular, raising speculation that the discounter is reexamining its pricing strategy and shifting into a stronger everyday-low-price stance.
For months, some Wall Street analysts have suggested that Wal-Mart has been gingerly raising some prices to increase gross margins and boost profitability. Analysts also noted the money that would have been spent on the July circular could possibly be used for corporate image-building advertising and in-store events.
A Wal-Mart spokeswoman last week denied any price hikes at the 2,400-unit chain.
"Our moves have always been to give consumers the best value and keep our prices low," she said. She added that most of the items in the circular are listed at Wal-Mart's everyday low price and do not represent deeper discounts.
At the International Mass Retail Convention last May, there were murmurings about changes in Wal-Mart's prices. However, Donald Soderquist, vice chairman and chief operating officer, told WWD, "It's absolutely untrue we're raising prices. It's not happening." Wal-Mart will return to its program of distributing monthly circulars in August. The hiatus, which could have a significant, though temporary impact on sales, particularly for those vendors featured in the circulars, has been planned for more than a year, the spokeswoman said.
"It's just a test to look and see where we are, like all companies do," she noted.
"We're testing to see what kind of pull the circular has with the type of mix we have," she added. "There's lots of marketing things that we're going to be looking at in terms of everyday low pricing, and lots of different types of product we're putting in it. It's good to sit back and do a reality check on how you've been doing it and how it needs to be going forward."
The soonest Wal-Mart could make changes to the circular based on this test "would be clear into fall," the spokeswoman added. There are no plans to change television advertising.
For Wal-Mart, the monthly circular format is the key advertising vehicle. One vendor noted that Wal-Mart sells "huge quantities" of his merchandise featured in the flyer and bases his orders on advertising plans many months in advance.
The vendor also noted that the company has been talking about changing the circular or doing without it for more than a year.
The Wal-Mart spokeswoman said the August circular is already at the printer and there are no plans to discontinue the monthly flyers. Another Wal-Mart official said it's likely that the frequency of the circulars will be trimmed to 11 times each year, with no issue in July.
Wal-Mart distributes between 50 million and 75 million copies of the circular at its stores and through newspaper inserts at the beginning of each month. The last flyer featured promotions running May 29 through June 4, contained 36 pages and offered special prices on women's denim shorts, ribbed tank swimsuits and sportswear separates.
Other discounters, such as Kmart, Bradlees and Caldor, also rely heavily on weekly sales circulars that include "hot prices" to draw traffic. However, these chains do not adhere to everyday low pricing strategies like Wal-Mart.
Walter Loeb, principal of Loeb Associates, said Wal-Mart's move is "a step in the right direction to keep a more even pricing policy." He noted that he doesn't believe Wal-Mart is raising prices, but has become "less aggressive" in pricing items that are not being promoted by other retailers.
"I would think this will affect their sales for the month, but it will probably help their profitability," he added. "They have such a strong image in everyday low price that sometimes I feel their circular is actually just superfluous."
Mark Husson, an analyst at J.P. Morgan Securities, said he didn't believe Wal-Mart's motivation for dropping the July circular was to reduce costs, which is one of the chain's initiatives this year. Wal-Mart trimmed capital expenditures this year by about $500 million to $3.5 billion.
"It's to clean things up in terms of price positioning and making sure that people are aware that [all merchandise] is at an everyday low price," he said. "The interesting thing will be to see what happens to sales."
Wal-Mart has been struggling to build sales momentum and boost profitability for several quarters. The giant discounter reported its first quarterly earnings decline in 25 years during last year's fourth quarter, but got back on track in the first quarter, with profits up 3 percent to $571 million. Still, Wal-Mart noted that same-store sales rose 4.7 percent at its discount stores, which was at the low end of the company's expectations.

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