Toys Spark a Brutal Battle

For retail stock watchers, nothing says "happy holidays" like retailers' bloody drive to slash toy prices as the end of the year approaches. Well before Black Friday's mayhem, major retail discounters are already ramping up their efforts to offer bargain-hungry consumers the lowest prices.

According to a Wall Street Journal report, Wal-Mart (NYSE: WMT  ) , known as an aggressive price slasher, apparently got caught off-guard by discount rival Target (NYSE: TGT  ) . The Journal found that many of Wal-Mart's toy prices were higher than Target's, prompting Wal-Mart to drop its prices on many toys last week, even if the price difference was just a few pennies.

The Bentonville Behemoth may be reaping the consequences of its recent decision to raise prices. Wal-Mart wanted to attract more customers, but instead, it may be ceding its reputation for rock-bottom prices to Target.

Perhaps sensing blood in the water, Target's offering additional incentives for customers to spend. Its initiatives include bonus 5% discounts for shoppers who use Target's credit cards or Target Visa cards.

Although Wal-Mart and Target are formidable forces in toys, they're not the only rivals duking it out. Amazon.com's (Nasdaq: AMZN  ) offering many of the season's popular toys at comparable prices to the discounters, as is Toys "R" Us. Amazon's also slashed 25% off prices of some of the hottest toy offerings. In addition, bricks-and-mortar retailers are trying to one-up Amazon by offering free shipping deals.

With many shoppers still pinched for cash, the stakes for this holiday season are higher than ever for retailers. If financial constraints force them to choose, shoppers will likely place greater priority on gifts for kids than on high-end offerings at Williams-Sonoma (NYSE: WSM  ) or Tiffany (NYSE: TIF  ) for their fellow adults. Retailers seem to hope that they can have their cake and eat it, too -- that shoppers attracted by low toy prices will stick around to buy other merchandise as well, despite recent ominous signs to the contrary.

Amid retail's vicious competitive landscape, and the toy wars are a crucial component of retailers' strategies for luring in customers. Shareholders must hope that retailers' gambits pay off, lest dismal sales ruin the holidays for their stocks.

Who do you think will win the war in toyland? Let us know in the comment box below.

Wal-Mart is a Motley Fool Inside Value pick. Amazon.com is a Motley Fool Stock Advisor choice. Wal-Mart is a Motley Fool Global Gains selection. The Fool owns shares of Wal-Mart. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


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