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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.