Wal-Mart (WMT): More Toy Price Cuts And Big City Dreams

Wal-Mart (NYSE:WMT) becomes more aggressive in soliciting new customers and undercutting rivals as each week passes. It has the balance sheet and retail locations to do those things.

The world’s largest retailer recently cut the prices of 100 toys below $10 and brought the price that it charges for popular e-books under $10 to take market share from Amazon (NASDAQ:AMZN).

Wal-Mart knows that this holiday retail season will probably be very weak because of unemployment and lack of access to credit for many consumers, so it is not finished offering bargains to bring in customers.

Wal-Mart has announced that it is dropping the price on another 100 popular toys by cutting their stickers as much as 30%. In a press release, the firm said it would offer “100 additional toys.” Rollbacks intend to help families save more this holiday season. The price adjustments may appear to be coming early in the holiday season, but according to Wal-Mart customer research, more than 50% of “moms aspire to have all their holiday shopping completed by Thanksgiving.”

Wal-Mart is spinning the cuts as being a move that is good for consumers. The reasons are much more complex than that. Wal-Mart obviously wants to take business from rivals like Target (NYSE: TGT), but it is also banking on the fact that many people who come to a store for a bargain end up buying other products while they are shopping. Wal-mart is betting that the sale of one toy turns into the sale of three or four other items. Wal-Mart may lose money on the toys and make money on the balance of the purchases.

Wal-Mart is also working on plans that will help its sales during the holidays for years to come. The company is planning on opening stores in the nation’s largest cities. Wal-Mart locations are now almost exclusively in the suburbs. Downtown locations have been dominated by dying firms like Sears (NASDAQ:SHLD) and smaller retailers for years. According to the FT, “Walmart has long faced political resistance to its plans in the largest US cities, largely orchestrated by the UFCW grocery workers’ union and its political allies.” The union knows that Wal-Mart has been very successful driving local stores out of business so a number of its members have jobs at stake.

Wal-Mart is likely to get is way as it plans to become a retailer with a greater urban presense. Its large stores are a source for local tax revenue and tens of thousands of jobs. That is not a mix that most municipalities will reject, especially as cities and towns face growing budget deficits due to the recession.

There will be a Wal-Mart under construction in Manhattan by the end of the decade.

Douglas A. McIntyre