Wal-Mart’s Savings Catcher Is a Step in the Wrong Direction

Wal-Mart (NYSE: WMT  ) has announced that it plans to expand Savings Catcher, its experimental price comparison service, nationwide this summer. The service, which was developed by Wal-Mart's @WalMartLabs R&D center, was tested in a pilot trial in seven test markets.

Most price comparison apps scan a barcode and search for better deals online. Wal-Mart's Savings Catcher does the opposite -- customers purchase an item first at Wal-Mart, but receive credit in their account if the product was available for a lower price elsewhere. Savings Catcher will initially only be available on the web, but will be added to Wal-Mart's mobile app during the summer.

Source: Wikimedia Commons.

Major retailers like Wal-Mart have struggled with the practice of "showrooming" -- where customers check out products at brick-and-mortar stores but use price comparison apps to find better deals online. Wal-Mart's industry peers Best Buy (NYSE: BBY  ) and Target (NYSE: TGT  ) have aggressively pushed back against Amazon (NASDAQ: AMZN  ) and other e-tailers by sacrificing margins and matching online prices.

Wal-Mart's Savings Catcher appears to be a defensive move against both challenges. Yet upon closer examination, the service feels more like a conservative, half-hearted effort than focused strike against e-tailers.

More limited and complex than it seems
The biggest problem with Savings Catcher is that it is blatantly designed to retain Wal-Mart shoppers.

Here's how it works. Customers enter the number of their receipts on the Savings Catcher website, along with the date of their visit. The service then examines the purchased items, compares the prices to local retailers such as Target, Walgreens, Dollar Tree, and Kroger, then refunds the difference in an eGift card within 72 hours. However, Savings Catcher doesn't scour storewide comparisons across a competitors' entire inventory -- it only includes prices listed in weekly print ads. Most importantly, Savings Catcher does not compare its prices to Amazon.

Now consider this scenario -- two customers go to Wal-Mart to purchase an item. The first customer, using Amazon's barcode scanner, simply scans the package, finds a better price online, and makes a purchase. The second customer, using Savings Catcher, buys the product, finds out later that there was a better deal, then receives Wal-Mart store credit. The second customer is now obligated to spend the difference back at Wal-Mart. What's more, he or she might still have missed out on a better deal online.

That example notably doesn't work for groceries (although Amazon is trying to change that with AmazonFresh), but Savings Catcher feels fairly restrictive compared to other price comparison tools. Wal-Mart shoppers also won't know how much they overspent until after they leave the store.

Wal-Mart's own barcode scanner, Scan & Go (which is part of Wal-Mart's mobile app), has similar problems as Savings Catcher. Instead of encouraging customers to scan products at competitors' stores, Wal-Mart promotes Scan & Go as an express check-out device for its own stores. Moreover, many U.S. shoppers haven't even heard of the feature, since it is only available in select stores in seven states.

Wal-Mart's Scan & Go. Source: Wal-Mart.

Simply put, it feels like Wal-Mart built its entire mobile strategy around keeping its customers out of competitors' stores.

The margin-crushing practice of price-matching
Retailers employing price-matching practices is certainly great for consumers, but it can crush bottom line growth.

Best Buy's promise is bold -- it will match the price of any "new, identical, and immediately available products" from Amazon, Staples, Target, Wal-Mart, and other competitors at the time of the purchase. Best Buy will also refund the difference if it lowers its price within 15 days of the purchase.

Last January, Target followed suit and claimed that it will match prices at Amazon, Wal-Mart, Best Buy, and other retailers year round. Target also promises to refund the difference if a lower price is found within seven days at Target, Amazon, Wal-Mart, Best Buy, Toys "R" Us, or a local competitor's printed ad.

This simple comparison of margins, revenue, and earnings growth shows the brutal cost of price matching on the bottom line:

 

Revenue growth (mrq)

Profit margin (mrq)

Earnings growth (mrq)

Wal-Mart

0.7%

3.3%

(5%)

Target

2.1%

2.6%

(16.1%)

Best Buy

(3.7%)

2.6%

N/A

Amazon

22.8%

0.4%

31.7%

Source: Yahoo Finance, June 6.

Amazon is still squeezing out big bottom line growth with tiny margins, thanks to its much stronger top line growth. In other words, brick-and-mortar retailers simply lack the revenue to support a prolonged pricing war against Amazon.

Wal-Mart, which has made 12 e-commerce acquisitions over the past three years, is trying desperately to catch up to Amazon in e-commerce. Last quarter, Wal-Mart's e-commerce sales rose 27% year-over-year, but it only accounted for 0.3% of its overall U.S. sales, or $203.5 million -- pretty underwhelming compared to Amazon's $11.9 billion in North American sales last quarter.

The Foolish takeaway
In conclusion, Wal-Mart's Savings Catcher is an interesting attempt to address the problems of showrooming and price-matching, but it's clearly more restrictive and inconvenient than barcode scanners and Best Buy and Target's broader price-matching promises.

Wal-Mart needs to either fully embrace e-commerce or abandon it altogether. Half-hearted attempts like Savings Catcher and Scan & Go just seem too concerned with keeping customers coming back to Wal-Mart than boosting long-term e-commerce revenue.

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Read/Post Comments (5) | Recommend This Article (5)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 08, 2014, at 3:45 PM, ARBE123 wrote:

    There are so many reasons this will fail.

    1) Most People do not have the time to price match items.

    2) Back in the 70's and 80's when I worked retail, we would go to our competitors with a notepad and write down their prices vs our prices.

    3) We would then undersell our competitor by a nickle.

    4) Walmart is dropping millions into this new app to help 'save you money' and put it on gift cards, which they will assume that you will lose.

    5) Walmart then assumes that you'll assume that Walmart, being the good guy, will actually give you in actual value, the difference between what they sell the item for and what joe-smoe's grocery store sells it for. (Ain't going to happen)

    6) When has a retailer actually tried, and succeeded in 'saving you money'?

  • Report this Comment On June 27, 2014, at 11:40 PM, JoyPCS wrote:

    ARBE123,

    FYI, since I found out about Savings Catcher 2 months ago, I have already received back $32.65. You set up a digital "gift" card and print the bar code. When Savings Catcher funds are available, you "Redeem" to your card. You then scan card at checkout to apply that credit to a purchase. I really appreciate this money back from Walmart!

  • Report this Comment On July 11, 2014, at 4:32 AM, carizanc wrote:

    I appreciate your comments - I had not thought of the program quite that way! However, I have noticed that the longer the program goes on the less money I get back. I figured it was a way for Walmart to lower their prices after discovering what they were overpriced on. Even so, I don't have time to compare everything I buy to every other store. If I can easily type in a code and have it re-checked, great! The effort involved in all that checking, and traveling, shopping, standing in line, somewhere else... just isn't worth the 30 cent savings.

    Also, if you sign in to the Savings Catcher website you can see each item and what the price difference was at the other store. No, it doesn't say where.. but does it matter? YOu've already bought it! You got the difference back... If you must know, look for yourself.

    Maybe this isn't the best overall idea and obviously has a catch, but I'll take the savings and as it's SAVED ON MY PHONE, not a gift card, I won't lose it.

  • Report this Comment On July 28, 2014, at 3:33 PM, cjenn3345 wrote:

    I have just had the WORST experience with the 'savings catcher'. Their system made all of the receipts disappear that I had uploaded and when I tried to clear up their mistake with the customer service I got horrible responses, which is apparently only a email. I dont think they actually want to talk to people when they mess up and offer no assistance. They first of all have been giving me the run around, first it was "well it's a new system' and then it was 'well you must have entered the number in wrong' to which I forwarded the conformation email to them and then their next excuse was 'well there is nothing we can do'. What a SCAM, I went out of my way to save money because of this new saving catcher, never again. The new program is nothing more than a way to get your money, your information and rip you off.

  • Report this Comment On July 29, 2014, at 1:00 PM, lkrause1997 wrote:

    As a customer this is my thought. I don't have time to price match first and then run to several different stores. This way I can go to Wal-Mart, make my purchases and save anyway after the fact. I've already earned quite a bit back and this is MUCH more effective for me than the other price match apps.

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