Wal-Mart Fights Predatory-Price Case in Arkansas : Retailing: The firm admits it sells some products for less than they cost, but says it is not trying to injure its competitors.

In a case that will shed rare light on its low-pricing strategy, Wal-Mart Stores Inc., America’s largest retailer, is fighting charges in Arkansas state court that it sells merchandise below cost to drive small competitors out of business.

Three small drugstore operators contend that the discount chain’s pricing policy--which boasts “always low prices”--is unfair and damages competitors in violation of state law. The three druggists--American Drugs, Mayflower Family Pharmacy and Baker Drug--are seeking $1.1 million in damages.

The case, similar to lawsuits pending against Wal-Mart in Oklahoma and Colorado, could open the door to actions from other Arkansas retailers if Wal-Mart loses. In addition, 22 other states, including California, have similar statutes barring companies from selling merchandise below cost, raising the possibility of more lawsuits.

However, some analysts do not believe the current trial will pose a serious threat to Bentonville, Ark.-based Wal-Mart, which earned $1.99 billion last year by selling goods below cost or significantly below the competition’s.

“Merchandise is sold below cost all the time in the retail industry, and Wal-Mart is not going to change its philosophy, which is to provide very good value to its customers,” said N. Richard Nelson Jr., who follows Wal-Mart for the Duff & Phelps investment firm.

“What needs to be proven is intent of hurting competition. This the court will decide,” Nelson said.

The three Faulkner County, Ark., drugstore owners are suing under that state’s Unfair Practices Act, which forbids the sale of merchandise at below cost “for the purpose of injuring competitors and destroying competition,” according to court papers.

Antitrust experts said the druggists have a better chance of winning under state law than federal law, which has a narrower definition of predatory pricing and is guided by precedent. Earlier this month, a federal jury decided American Airlines was not trying to drive competitors out of business when it slashed fares in 1992.

The Arkansas druggists contend that Wal-Mart sold more than 200 items--from Crest toothpaste and mouthwash to over-the-counter drugs--at below cost at its super center in Conway, Ark.

The company has admitted in court filings that it does sell some products for less than they cost the retailer but that Wal-Mart is not breaking the law because it is not trying to injure competitors.

David Glass, Wal-Mart’s president and chief executive, in testimony Monday defended the discount retailer’s strategy to sell certain items below its costs.

“We couldn’t continue as the low-cost leader if we didn’t price things below cost,” said Glass.

Wal-Mart attorney Peter Kumpe said competition in Faulkner County, Ark., is thriving. He said Wal-Mart’s pricing policies are set by the headquarters in Bentonville and are the same throughout the company for a wide spectrum of products, which he called “the market basket.”

But American Drugs Inc. owner Dwayne Goode testified that Wal-Mart’s prices “have had a negative effect on our store, a very negative effect. I lost customers.”

The suit is the latest in a string of actions against Wal-Mart. In 1986, the company lost a similar case in Oklahoma, which has a law requiring retailers to sell at least 6.75% above cost unless the store is running a sale or meeting competition. Abandoning an appeal, Wal-Mart raised prices across the state.