January 29, 2008 – Business Management Article

Wal-Mart Stores Inc (WMT) announced a price cut on thousands of items including groceries, popular electronics and other items. Price cuts range from 10 percent to 30 percent. Though Wal-Mart announces such price cuts during the holiday shopping season, this promotional move (just before the Super Bowl football championship game) is aimed at winning sales from limited budget shoppers ahead of the Super Bowl. Besides, forecast for retail sales in the US for 2008 is believed to grow slowly, the slowest in six years. Retail analysts opine that holiday sales rose by no more than 4 percent, one of the slowest rate increases since 2002. The National Retail Federation (NRF) in its 2008 economic forecast, predicted that retail industry sales (which exclude automobiles, gas stations, and restaurants) will increase 3.5 percent from last year. According to the NRF report, the slow pace in sales growth will continue before picking up in the second half of the year.

Retailers must turn to promotions to lure cash strapped shoppers into their stores, and at the same time try to keep inventory lean at the start of the season. There is a lot of pressure to give more discounts to clear unsold merchandise which hurts profit margins.

Others like Best Buy Co Inc and Circuit City Stores Inc are charging no interest on their websites on electronic items (like no interest for three years on all Samsung flat panel TVs $999 and up) ahead of the Super Bowl weekend.

Weak holiday sales

But, are such promotions working. One would certainly think so, specially after Wal-Mart’s December sales at U.S. same-store rose 2.4 percent, beating Wall Street’s forecast for a 2.1 percent gain. However, consumers are reluctant to spend. If one looks at Wal-Mart’s sales, necessary products drove sales. Shoppers spent mostly on cheap grocery and pharmacy items. Most U.S. retailers reported disappointing holiday sales in December. No. 1 wholesale club Costco Wholesale Corp. was another rare bright spot, benefiting from budget-conscious consumers seeking bargain electronics and buying bulk-food items.

Lackluster traffic levels in the weeks leading up to Christmas drove increased promotional activity. Many analysts feel that the reasons for shopper’s spending less and being more budget conscious are:

  • Concerns for higher gasoline prices or higher energy costs
  • Higher food costs
  • Slow Job Growth
  • Declines in the credit and housing markets.

Year 2008 is definitely going to be a struggle for most retailers, even for the well-established and the best-known brands.

Related Stories: Wal-Mart’s Marketside stores (smaller Neighborhood Markets) will compete with competitor and British retailer Tesco. Read: Wal-Mart’s Marketside or Tesco’s Fresh and Easy stores in US

Retailing, Wal-mart