It looks like Wal-Mart (NYSE:WMT) may deliver some uncharacteristic slack to some of its competitors. USA Today reported that the discounter giant doesn't plan such deep price cuts on toys this year. This should come as a relief to its competitors. But wait -- on second thought, you might be tempted to ask, "What competitors?"
I recently got an email from a friend on this very subject. She asked, "Hey, what happened to all the toy stores?" She and her sister had been talking about how hard it was to shop for toys for her new baby and her nephew, seeing how several of the old standbys have basically been removed from the landscape.
Flash back to last January. Last year, the holiday season, a time of joy and cheer for so many, left behind toy stores that had been beaten and bloodied by Wal-Mart and Target (NYSE:TGT). FAO Schwarz ran fire sales and shuttered its stores, including its Zany Brainy units. Privately held KB Toys was left fairly crippled, as it's currently in bankruptcy and has scaled back stores.
Even the once-mighty Toys "R" Us (NYSE:TOY) mulled over options this past summer, such as discontinuing toys altogether and spinning off its successful Babies "R" Us unit. To make matters tougher, the company has been involved in a skirmish with its Internet partner Amazon.com (NASDAQ:AMZN).
Indeed, now was likely the time that investors had probably started wondering about the coming holiday season and how it would shake out for Toys "R" Us, with less competition in the space but with Wal-Mart's continued trademark cutthroat pricing.
Now that Wal-Mart's easing up a little on price, mom-and-pop toy stores are likely breathing a sigh of relief (although it's arguable that the independents are better insulated against Wal-Mart's encroachment by their ability to carry unique, special assortments of toys, further enhanced by the more personal touch that a megastore can't give).
Although the challenges are by no means behind it, Toys "R" Us investors might be feeling some degree of relief right now. With so many competitors out of the running and signs that Wal-Mart may lighten up a little, perhaps the toy purveyor can improve its prospects this holiday season.
Toys are a well-known loss leader for Wal-Mart. Should Wal-Mart ease up on price cuts now? Offer your two cents on the Wal-Mart discussion board.
Alyce Lomax does not own shares of any of the companies mentioned.
