Discount chains not finished with price cuts
Consumer spending is boosting the outlook for the nation’s retailers, but some major discounters are still lowering prices to woo bargain-hungry shoppers.
Retail giant Wal-Mart Stores Inc. said Friday that it was cutting prices on more than 10,000 items, while Kmart has been permanently reducing prices on merchandise such as women’s layering shirts and children’s T-shirts.
“Promotions and things that drive traffic are still critically important,” said Mark Snyder, chief marketing officer at Kmart. “I don’t think we’re out of the woods.”
The retailers said that despite recent signs of strength in the industry -- including a record sales increase in March among major chain stores -- their customers continue to be strained by economic worries. Although merchants are moving away from the drastic price reductions that were necessary during the recession, they still are trying to entice shoppers with low prices.
At Wal-Mart, rollbacks on products such as Tide laundry detergent, Kraft macaroni and cheese and Bounty paper towels have already hit shelves, with more reductions to come, spokeswoman Linda Blakley said.
“We know that times are still tough,” she said. “People rely on us for the best prices and we know that, so we’re taking another look across the store to see where we can do even better.”
She added that the special prices would last about 90 days, with a range of discount amounts.
Some analysts questioned whether Wal-Mart’s new rollbacks were any better than the retailer’s usual low prices and promotions. Because of Wal-Mart’s behemoth size, it has long been able to pressure vendors to work with it to undercut competitors on price.
“It was somewhat difficult for us to discern what was a ‘new rollback’ versus what was already on sale and simply received updated signage,” JPMorgan analyst Charles Grom wrote in a note to investors this week. “For example, while Wal-Mart had already carried DVDs for $5.00, the new rollback was entitled ‘was $7.50, now $5.00.’ ”
Gilford Securities analyst Bernard Sosnick said the price cuts were “a smart and pre-determined measure.”
“Consumers will respond to Wal-Mart’s rollbacks,” he said. “They most always do.”
In its most recent quarter, Wal-Mart reported a 22% increase in profit but said sales at U.S. stores open at least a year -- considered a reliable measure of retail health because it excludes the effect of store openings and closings -- missed expectations by falling 1.6%. The Bentonville, Ark., retailer also said it expected a challenging start to the year for its U.S. business.
Kmart fared slightly better in its last quarter, reporting that sales at stores open at least a year increased 1.7%.
On Thursday, retailers reported that sales at stores open at least a year rose 9.1% in March compared with a year earlier, according to Thomson Reuters’ tally of 28 retailers including Target Corp., Costco Wholesale Corp. and Macy’s Inc. It was the largest monthly increase since the group began collecting data in 2000. Wal-Mart and Kmart don’t report monthly sales.
Shares of Wal-Mart fell 31 cents, or 0.6%, to $55.07 on Friday. Shares of Kmart’s parent company, Sears Holdings Corp., rose $1.03, or 1%, to $107.03.