Wal-Mart's Slash-and-Burn Strategy

Wal-Mart (NYSE: WMT  ) is embarking on an aggressive campaign to outdo competitors, continuing to slash prices well ahead of the coming holiday season.

Following the precedent it set on Oct. 1, when it started cutting prices on toys, Wal-Mart has added 15,000 more items to its low-price offensive. The price cuts it's taking are 20% lower than the ones it featured last year (when it also launched a similar early bird price-slashing offensive). Wal-Mart also spread the word that more reduced prices are coming.

While Wal-Mart has always been known for its low prices, it has recently begun a new ad campaign that focuses on how consumers can "live better" through those inexpensive goods. It's claiming that its price cuts can help the average family save $652 between October and December.

Of course, this gives rivals like Target (NYSE: TGT  ) , Best Buy (NYSE: BBY  ) , and Costco (Nasdaq: COST  ) a case of the shakes. Wal-Mart's willing to put margins on the line to drive traffic and sales, spurring rivals to follow suit in order to keep price-conscious shoppers.

However, an interesting recent Wall Street Journal article theorized that the era of Wal-Mart may be over. Consumer attitudes regarding retail are apparently shifting, with many shoppers choosing quality over price. I've agreed with the Journal's argument for quite some time. Given Wal-Mart's PR issues, and the occasionally ruthless methods behind its low prices, many consumers would rather shop elsewhere.

As with stocks, sometimes "cheap" is cheap for a reason, and it seems like many consumers are realizing the pleasures of shopping at retailers that emphasize eco- and community-friendly policies, treat employees well, and offer sterling customer service. (Costco and Whole Foods Market (Nasdaq: WFMI  ) are arguably good examples.)

Wal-Mart's certainly throwing its weight around with big moves like this. But I'm just not certain that these cuts are a sustainable strategy, and I doubt they'll bode well for Wal-Mart's long-term fortunes.


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