The upcoming holiday season is looking like a bonanza for bargain-hunters -- but perhaps a rougher time for many retailers. In the latest offensive of its ongoing war against rivals, Wal-Mart (NYSE: WMT ) is cutting prices on small appliances.
Just last week, after slashing toy prices, Wal-Mart announced reduced prices on electronics. That's left some investors wondering how retailers like Best Buy (NYSE: BBY ) , Circuit City (NYSE: CC ) , Target (NYSE: TGT ) , and even Amazon.com (Nasdaq: AMZN ) might respond -- or how they might be affected.
Wal-Mart is lowering prices on 50 household staples, including coffee makers and microwaves. It's also reducing prices on its Metro 7 apparel line, its nascent attempt at trendier clothing options -- an obvious volley against Target's cheap-chic duds. However, so far it appears that Wal-Mart hasn't gotten far with Metro 7. (Almost exactly a year ago, I expressed doubts about Wal-Mart's efforts in this area.)
It's hard to ignore Wal-Mart's recent sluggish sales; the market found October's sales data troubling. The slowdown's been partially blamed on tough comparisons to last year's busy hurricane season, and to the remodeling Wal-Mart's undertaking at some stores. But in my opinion, investors have good reason to worry about how a behemoth like Wal-Mart will drum up future growth.
As I noted last week, this has been a transitional year for Wal-Mart. It's made some major plans and initiatives to foster both growth and goodwill in the face of its vocal critics. Some may say that price means everything, but last month I ran across interesting survey data indicating that some consumers take elements beyond price -- like corporate social responsibility, and a company's perceived treatment of its workers -- into consideration when making their purchasing decisions.
Regardless of whether Wal-Mart's continued price-slashing is a sign of weakness or strength -- I'll admit I'm a Wal-Mart bear -- it's enough to make its investors, and those of its rivals, a little bit nervous. Price wars aren't good news for margins, although they can drive sales. Hopefully, these companies won't be in a race to the bottom when it comes to pushing merchandise this holiday season.
Grab a cart and pick up some related Foolish content:
- Wal-Mart showed its teeth when it cut prices on electronics and toys.
- It's time for a battle of the discounters, CAPS style.
- Are investors missing the big picture at Wal-Mart?