"Everyday low prices" are getting out of hand. Wal-Mart (WMT) already is cutting what it charges for toys and the holiday season has really not begun.
According to The Wall Street Journal, the world’s largest retailer "said it will cut prices on some of the most popular toys and speed up the opening of Christmas shops in its stores nationwide as it tries to lure budget-conscious shoppers and jump start its biggest selling season."
Since Wal-Mart wants to make money as much as any other company, the move indicates that the retailer’s management thinks this year’s environment will be especially bad. It is going to try to suck in people while they still have a few dollars left in their pockets or on their credit cards.
Wal-Mart’s action is a typical method for burying the competition. It can afford almost endless inventory build-ups for the busy shopping season. It can pull in the very modest amount that the consumer has to spend and leave other retailers with scraps off the table.
While the news may mean that Wal-Mart’s earnings will be a bit light in the fourth quarter, it is an indication that the balance of the retail industry is in for its roughest patch in years. Not all large store chains have nearly unlimited access to capital for inventory, especially when it comes at a very high price. Not all large retailers can afford to survive modest or negative margins during the busiest season of the year.
Firms such as Sears (SHLD) and Macy’s (M) are going to have to post discounts of their own and post them now. Wal-Mart has forced their hands.
Douglas A. McIntyre
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