Wal-Mart Shows Its Teeth

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Christmas may be coming early this year, at least if retailers have their say. So are the price wars to woo holiday shoppers, it seems. Wal-Mart (NYSE: WMT) is taking the first shot, with formidable discounts on some of its most popular electronics items, to its rivals' dismay.

Wal-Mart announced price cuts effective through Dec. 31 on nearly 100 electronics items, focusing on popular gifts like high-definition televisions, cell phones, and digital cameras.

This move could hurt plenty of companies as the most important retail season approaches -- not only Best Buy (NYSE: BBY) and Circuit City (NYSE: CC), but also Target (NYSE: TGT), Costco (Nasdaq: COST), and maybe even e-commerce companies like Amazon.com (Nasdaq: AMZN).

Wal-Mart said that it has already marked down toys, resulting in higher sales volume -- a reminder of how the company's low prices have savaged the retail toy industry. Back around 2003, the industry shrank dramatically as companies like FAO Schwarz, Zany Brainy, and KB Toys either closed, vastly scaled down, or went bankrupt. Once-mighty toy giant Toys "R" Us went private in July 2005, after a long, losing struggle with the Bentonville Behemoth.

Given Wal-Mart's recent disappointing sales data for October, it's no surprise that it's eager to drive customer traffic back into its stores by any means possible. It's one way to quiet investors' increasing questions about Wal-Mart's future growth trajectory.

Wal-Mart's had an interesting year. The discounter has battled serious image problems with interesting new initiatives, including bright ideas in energy conservation. It's also struggled with some new elements of its business, including a more fashionable makeover for its apparel section. Combined with the slow sales growth in October, Wal-Mart's troubles may prompt investors to wonder whether it's losing its way -- or its edge.

I'm not exactly a Wal-Mart bull, but suffice it to say that Wal-Mart's still got a lot of fight left in it, and plenty of advantages it can take with deep discounts. Nonetheless, investors should watch closely, to make sure all those everyday low prices don't do too much damage to its margins as it tries to put the hurt on its competitors.

For more on Wal-Mart, see the following articles:

• It's time for a battle of the discounters.
• Wal-Mart has some bright ideas.
• Are investors missing the big picture at Wal-Mart?

Wal-Mart is a Motley Fool Inside Value recommendation. Best Buy, Costco, and Amazon.com are Motley Fool Stock Advisor selections.

Alyce Lomax does not own shares of any of the companies mentioned.