How Wal-Mart's Losing Competitive Advantage

As if Wal-Mart (NYSE: WMT  ) didn't have enough problems these days, the big-box behemoth may now be losing its ability to command the rock-bottom prices on which it's built its reputation.

As CNN Money recently reported, price comparisons conducted by retail consulting firms such as Customer Growth Partners revealed that discount rival Target (NYSE: TGT  ) currently offers slightly lower prices than Wal-Mart on a collection of common items such as milk and cereal, clothing, and health and beauty items. Customer Growth Partner says this is the first time in four years that Target's turned the tables on its rival; previously, Wal-Mart offered prices 2% to 4% lower than its bullseye-branded opponent.

Though many Americans are currently forced into tight budgets, Wal-Mart's still been struggling in an environment where its low-price ethos should have thrived. Its U.S. same-store sales have dropped, its core customers have fallen on hard times, and not even its holiday quarter could turn the tide. Perhaps now, we can better understand its slump.

Unfortunately for Wal-Mart and its shareholders, the discounter's having a hard time luring new customers in the door to make up for the ones it's lost. Last fall, Wal-Mart was already doing the unthinkable by boosting prices for some items.

This is a dangerous game for Wal-Mart. The company has always derived its biggest competitive advantage from the bargain-basement prices that its massive footprint, influence, and scale allowed it to wring from suppliers. Without this edge, Wal-Mart could forfeit its very identity, driving shoppers elsewhere in the process. Many customers have already begun defecting to small deep discounters such as Family Dollar (NYSE: FDO  ) and Dollar General (NYSE: DG  ) .

Wal-Mart's caught between a rock and a hard place right now. Any efforts to improve sales figures by boosting prices (or allowing aggressive rivals to undercut it) will likely make things worse, as long as customer traffic's still waning. With its growth prospects looking leaner than ever, investors might want to steer clear of Wal-Mart's shares for now.

Share your thoughts on Wal-Mart's price predicament in the comments box below, or add it to your watchlist to keep an eye on its progress.

Wal-Mart has been recommended by Motley Fool Inside Value, Motley Fool Global Gains, and Motley Fool Income Investor. Motley Fool Options has recommended a diagonal call position on Wal-Mart. The Fool owns shares of 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; for more on this and other topics, check back at Fool.com, or follow her on Twitter: @AlyceLomax. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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