What Happened to Wal-Mart's Low Prices?

Wal-Mart's (NYSE: WMT  ) name is practically synonymous with rock-bottom prices. However, as the discount giant navigates the current economic landscape (and confronts investors' fears about slowing domestic sales growth), it's doing the unthinkable. The Bentonville Behemoth is actually raising some of its prices.

The discount juggernaut's earlier attempts to woo shoppers in "the new normal" U.S. economy with drastic price reductions backfired. Instead of spurring sales growth, Wal-Mart customers tended to simply snap up the bargains, then restrain themselves from filling their cart with other merchandise.

Time took a look at Wal-Mart's new game plan, which involves adjusting prices on items including food to a two-year high. The retailer's already increased costs in these areas by a whopping 5% since the beginning of this year.

Even with the price hikes, Wal-Mart is still the king of cheap. According to a study by JPMorgan Chase, when compared to grocers such as Kroger (NYSE: KR  ) and Safeway (NYSE: SWY  ) , Wal-Mart remained the cheapest option.

That said, raising prices could always backfire. Wal-Mart vies for consumer dollars with other discount giants such as Costco (Nasdaq: COST  ) and Target (NYSE: TGT  ) , as well as the deep discounters such as Dollar General (NYSE: DG  ) and Family Dollar (NYSE: FDO  ) . Wal-Mart's major competitive advantage against these foes is its reputation for dirt-cheap prices, and right now, dollar stores are a more formidable competitive force than you might think.

Earlier this year, danger for discounters seemed apparent, as Wal-Mart admitted that its traditional customers were suffering greater financial hardship than most Americans, and living paycheck to paycheck more than ever.

With its same-store sales down for five straight quarters, so Wal-Mart's real challenge is to grow additional customer traffic. Although you can see why Wal-Mart might boost short-term sales by raising prices, that might force its core customers to buy even less. It might even drive many of them to rivals such dollar stores. In other words, this new plan for slightly upwardly mobile prices could backfire, too.

Is Wal-Mart making a huge mistake by boosting prices? Let us know what you think in the comments box below.

Wal-Mart and Costco are Motley Fool Inside Value recommendations. Costco is a Motley Fool Stock Advisor pick. The Fool owns shares of Costco and 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. The Fool has a disclosure policy. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.


Read/Post Comments (4) | Recommend This Article (6)

Comments from our Foolish Readers

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 October 16, 2010, at 9:11 AM, madmilker wrote:

    With five straight declining quarters of same store sales... it's more like....What happen to the customers?

    on Wal*Mart's China web page!

    "Wal-Mart China persists in local procurement which provides more job opportunities, supports local manufacture industry and promotes local economy. So far, 95% of merchandising sold at Wal-Mart China store are local products by which Wal-Mart has established business relations with nearly 20,000 suppliers. At Wal-Mart, we treat suppliers as partners and would like to develop with them. In 2008 Wal-Mart won the Supplier Satisfaction published by Business Information of Shanghai for five consecutive years."

    5% foreign in China...

    That doesn't support American exports and American jobs.

    Remember what Lance Winslow wrote in that article "The Flow of Trade in a Global Economy"....

    "Now let us look at Wal-Mart again; you buy a product there, 6% goes to the employees, 10-18% is profit to the company, 25% goes to other costs and 50% goes to re-stock or the cost of goods sold. Of the 50% about 20-25% goes to China, a guess, but you get the point. Now then, how long will it take at 433 Billion dollars at year for China to have all of our money, leaving no money flow for us to circulate? At a 17 Trillion dollar economy less than 40-years minus the 1/6 they buy from us. Some say that if we keep putting money into our economy, it would take forever, but if we do not then eventually all the money flow will go. If China buys our debt then eventually they own us, no need to worry about a war, they are buying America, due in part to our own mismanaged trade, so whose fault is that? Not necessarily China, as they are doing what's in the best interests, and we should make sure that trade is not only free, but fair too."

    Also, think for a moment about George Washington....yes the man that is on the US dollar bill....How do you think George feels being sent overseas in return for all that foreign so-call cheap items and being left in a foreign bank because the American worker doesn't make anything for the foreigners to buy. Cheap items didn't make this great union of 50 states the greatest place on the face of this Earth.....the American worker (union and non-union) did.

    You can't have a strong country without having a strong currency and you can't have a strong currency unless you keep it floating around within your 50 states. This is why the store with the star in the name puts 95% China made items in their stores in China....to keep their "yuan" in their country helping the nice people there. And with only 5% left for all the other 182 country's that make stuff including the United States of America....that doesn't produce very many jobs outside of China.

    Being an old person myself and knowing how it was back in the 40's, 50's and 60's in this union of 50 states....I look at George each time I pull him out of my billfold and make a promise to send him out for items made in America so after floating around helping each hand he touches just maybe one day he will shake mine again.

    Fifteen cargo ships pollute as much as 760 million automobiles.

    $9 billion a year in hidden taxes to all American taxpayers to clean fish from ballast tanks of ships...

    think about all those facts the next time you pull that George out of your pocket....

    Retail makes NOTHING...

    Governments only make MORE DEBT...

    It's time for less of those two and for America to get back to what it does best....MAKE STUFF..

    cause George Washington on that dollar can't help anyone in the United States of America if he is being held in a foreign hand.

    Made In America is the only way out of this mess cause foreign made put US here.

  • Report this Comment On October 16, 2010, at 1:01 PM, plvo38 wrote:

    prices still cheaper

  • Report this Comment On October 16, 2010, at 4:24 PM, madmilker wrote:

    “Cheap things are not good, good things are not cheap”

  • Report this Comment On October 18, 2010, at 5:07 AM, Glick wrote:

    The Was and is now prices on shelf products are not what they seem. Do you think were trying to be Fooled?

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1334340, ~/Articles/ArticleHandler.aspx, 11/28/2014 3:44:11 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement