Skinflints can rejoice now that Wal-Mart (NYSE:WMT) is back to its discounting roots this holiday season. The world's leading discount department store chain briefly flirted with going upmarket, trying to snag some of the cheap chic pixie dust from rival Target (NYSE:TGT).
It didn't pan out. An ad campaign featuring attractive teens touting Wal-Mart fashions played out about as well as its ill-conceived School Your Way social networking experiment that bowed out quickly during the 2006 back-to-school season.
Step into Wal-Mart's apparel department this season, and you'll find a chain that's big on bargains and light on pretentiousness. Its "Express for Less" 10-10-10 program features 10 items, in 10 different colors apiece, available for $10 or less.
Wal-Mart knows its place in the department store food chain. It slashed prices on 15,000 different items last month. This follows department-specific cuts last year in holiday hotbeds like toys and consumer electronics.
Given the iffy economy, pandering to the thrifty may be the way to go this holiday season. Sure, Wal-Mart has always been the low-price leader. The Inside Value recommendation is a shrewd operator, making the most of its girth and cutting-edge inventory control practices to deliver rock-bottom pricing.
"Times are a little tougher than they were a year ago and consumers are particularly appreciative that they can count on Wal-Mart to save them money," CEO Lee Scott said during last week's quarterly conference call. "That matters not just in the U.S., but around the world."
Small markdowns on big items
Don't let $10 duds and $4 generic pharmaceuticals kid you into thinking that it's all about pocket change transactions at Wal-Mart. The company is positioned to deliver its first $100 billion quarter this year. It won't get there without healthy contributions out of big-ticket items.
This is where Wal-Mart's strategy to slash prices on consumer electronics should pay off. The company is already reaping dividends of its move to expand marked-down offerings in that department.
"Electronics will continue to be strong for us this Christmas in such items as televisions, GPS units, digital cameras, video games and computers," Eduardo Castro-Wright, the company's head of its Wal-Mart Stores division, noted during last week's call. "Sales of flat panel TVs are up 110% in the third quarter over last year and laptop computers are up more than 80%."
With chains like Circuit City (NYSE:CC) and RadioShack (NYSE:RSH) backpedaling and others like Tweeter and Ultimate Electronics filing for bankruptcy, this will be a feast for survivors like Wal-Mart on the discounting end and Best Buy (NYSE:BBY) on the superstore front to drive sales higher over the holidays.
Every season is a holiday at Wal-Mart
Despite the heavy holiday run, Wal-Mart's financials aren't as lumpy as the pricier department store chains. A big reason for that is the company's emphasis on groceries, which now make up 40% of stateside sales.
Why have Wal-Mart Supercenters become so magnetic to shoppers looking to stock their cupboards on a weekly basis? Price, of course. You didn't think it was the cavernous shops and sprawling parking lots, did you?
"During the third quarter we further increased the price spread between us and three of our largest grocery competitors with a spread ranging from 14-28%," Castro-Wright said.
In other words, if you think your local Safeway (NYSE:SWY) or Kroger (NYSE:KR) is offering some pretty sweet deals, it may pay to price that against your neighborhood Wal-Mart.
So every day is Christmas at Wal-Mart. Because of its dependence on year-round staples, Wal-Mart is looking to earn between $0.99 a share and $1.03 a share from continuing operations during the quarter, or slightly less than a third of the profit that it will produce for the entire year.
This doesn't mean that the company is Grinch-proof. Between pesky gas prices at the pump and subprime foreclosures, now isn't the time to get cute. Wal-Mart is a discounter, and proud of it. Who needs cheap chic when cheap is the new chic?
It learned its lesson after holding back early during the 2006 holiday shopping season. It will be back this year with doorbuster deals on Black Friday and healthy sales beyond that.
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