The upcoming holiday season is looking like a bonanza for bargain-hunters -- but perhaps a rougher time for many retailers. In the latest offensive of its ongoing war against rivals, Wal-Mart (NYSE:WMT) is cutting prices on small appliances.
Just last week, after slashing toy prices, Wal-Mart announced reduced prices on electronics. That's left some investors wondering how retailers like Best Buy (NYSE:BBY), Circuit City (NYSE:CC), Target (NYSE:TGT), and even Amazon.com (NASDAQ:AMZN) might respond -- or how they might be affected.
Wal-Mart is lowering prices on 50 household staples, including coffee makers and microwaves. It's also reducing prices on its Metro 7 apparel line, its nascent attempt at trendier clothing options -- an obvious volley against Target's cheap-chic duds. However, so far it appears that Wal-Mart hasn't gotten far with Metro 7. (Almost exactly a year ago, I expressed doubts about Wal-Mart's efforts in this area.)
It's hard to ignore Wal-Mart's recent sluggish sales; the market found October's sales data troubling. The slowdown's been partially blamed on tough comparisons to last year's busy hurricane season, and to the remodeling Wal-Mart's undertaking at some stores. But in my opinion, investors have good reason to worry about how a behemoth like Wal-Mart will drum up future growth.
As I noted last week, this has been a transitional year for Wal-Mart. It's made some major plans and initiatives to foster both growth and goodwill in the face of its vocal critics. Some may say that price means everything, but last month I ran across interesting survey data indicating that some consumers take elements beyond price -- like corporate social responsibility, and a company's perceived treatment of its workers -- into consideration when making their purchasing decisions.
Regardless of whether Wal-Mart's continued price-slashing is a sign of weakness or strength -- I'll admit I'm a Wal-Mart bear -- it's enough to make its investors, and those of its rivals, a little bit nervous. Price wars aren't good news for margins, although they can drive sales. Hopefully, these companies won't be in a race to the bottom when it comes to pushing merchandise this holiday season.
Grab a cart and pick up some related Foolish content:
- Wal-Mart showed its teeth when it cut prices on electronics and toys.
- It's time for a battle of the discounters, CAPS style.
- Are investors missing the big picture at Wal-Mart?
Wal-Mart is a Motley Fool Inside Value recommendation. Best Buy and Amazon.com are Motley Fool Stock Advisor selections.
Alyce Lomax does not own shares of any of the companies mentioned. As of this writing, she was ranked 2,063 out of 12,825 in CAPS.
