Lack of Inflation Story

October 30th, 2014 8:09 pm | by John Jansen |

The WSJ reports that Walmart is considering a program in which its brick and mortar stores will match the prices of online sellers such as Amazon. The story notes that the firm has resisted such an approach previously but with the Christmas selling season nigh and competition intense Walmart might acquiesce and take that course this year.

This is a single anecdote but it is emblematic of the world we live in and the difficult task it will be to reignite the inflationary fires.

Via the WSJ:

Wal-Mart Stores Inc. is testing a program to match online prices from rivals like Inc. this holiday season, a move that could make the discounter more competitive but cut into profits.

The testing comes ahead of what’s shaping up to be a fiercely promotional year-end shopping season.

Wal-Mart is testing a program to match online prices from rivals like Amazon this holiday season, a move that could make the discounter more competitive but cut into profits. Shelly Banjo joins MoneyBeat. Photo: Getty.

Wal-Mart executives are discussing whether to go ahead with the price-matching program that would expand its current one for local brick-and-mortar competitors, according to a company spokeswoman Deisha Barnett. Under consideration is how much Wal-Mart might lose if the program were to go nationwide, according to people familiar with the matter.

Ms. Barnett said the company’s focus is on taking care of customers and noted that store managers have had discretion to match certain online prices for customers for some time.

Wal-Mart has long resisted matching online prices, even as competitors Best Buy Co. and Target Corp. adopted the practice to keep customers from “showrooming,” or browsing its brick-and-mortar stores but subsequently making the purchases at online competitors like Amazon.

But it comes as Wal-Mart is fighting to keep shoppers coming to its stores and to regain its reputation as a low-price leader, which has faded in recent years as dollar stores and online competitors have become more aggressive. According to a June pricing study by consultancy Kantar Retail, a basket of goods at Wal-Mart was just 1.2% cheaper than the same items at Target, the smallest price gap since 2012.

Losing its pricing edge makes it more difficult for Wal-Mart to draw in customers based solely on price, according to Laura Kennedy, who conducted the Kantar study.

Online, Wal-Mart has become more competitive with Amazon, according to research from Wells Fargo and pricing firm 360pi. In the three months through February, Wal-Mart’s prices were on par with Amazon’s. In August, Wal-Mart’s prices dropped to nearly 10% lower than those of Amazon, where prices have been increasing, the research found.

Price matching brings a financial cost but can have a benefit to the retailer’s reputation. At Best Buy, the program resulted in a hit to margins, according to Janney Montgomery Scott LLC analyst David Strasser, who said the move was ultimately a smart one because it “put a stake in the ground that it was a serious competitor to Amazon and other online retailers.”

Best Buy CEO Hubert Joly last year said he thought the cost of price matching will eventually come down as the gap between prices in stores and online narrows.

The stakes are set to rise even higher ahead of the holiday shopping season, when retailers rake in more than a fifth of their yearly sales. To kick of the holiday promotions, Target announced last week that it would eliminate shipping fees for all online orders from Oct. 22 through Dec. 22, while Amazon announced early access to holiday deals for its Prime members.

Online shopping is expected to snag a greater share of holiday budgets. Consumers plan to do more than 44% of their holiday shopping online this year, up from 31% in 2009, according to the National Retail Federation.

Wal-Mart is struggling to attract shoppers to its massive supercenters. The retailer hasn’t booked sales growth in the U.S., excluding newly opened or closed stores, since 2012. The company is investing heavily in e-commerce and in smaller, conveniently located stores. It is also trying to reclaim its pricing advantage.

To that end, the retailer in April rolled out an online and mobile tool called Savings Catcher, which analyzes shopper’s receipts and refunds price differences found between Wal-Mart’s prices and local competitors.

“We’re doubling down to make sure that we show price gaps across the marketplace,” Wal-Mart U.S. chief merchant Duncan Mac Naughton told investors earlier this month, noting that nearly 3% of receipts are now submitted through the Savings Catcher tool.

The tool helps Wal-Mart attract customers, and perhaps more important, it gives the retailer visibility into how its prices compare to rivals. Armed with that information, analysts say Wal-Mart can better pressure suppliers for lower prices.

Be Sociable, Share!

Post a Comment