Why Walmart is Rolling Back Price Rollbacks
Walmart (WMT) has tried everything as it seeks to hang onto the customers it gained during the downturn -- from remodeling stores to engaging in ever-steeper price cuts this spring. But none of it's working, so Walmart is pulling the plug on the extra discounts and will spend less on marketing to tell customers about their low prices, too. Which strangely, might actually help sales improve.
After its second quarter showed comparable store sales continue to sink, Walmart said on its quarterly earnings call that it will kill off its price-cutting program and cut back on ads that talk up low prices. After all, if lower prices don't drive more volume, why give up the margin? Walmart's been doing well at getting even more efficient in the downturn and keeping profits up, but price cuts are supposed to drive sales. Since they're not, Walmart is smart to can the discount program.
Walmart's problems are part of a larger trend in retailing right now, where price-cutting doesn't seem to help drive sales. Many chains are trying price cuts, and sometimes they're working -- as in the recent return to profit of Abercrombie & Fitch (ANF) -- but often, they're not. Possibly, nervousness about the economy has bottom-feeder shoppers holstering their credit cards, and more middle-class shoppers are a better target now.
Why might higher prices at Walmart drive more sales? Well, the problem Walmart faces is it's trying to reclaim upscale shoppers who traded down during the recession. They're a bit less price-sensitive customers...and offers of giant $1 bottles of ketchup aren't luring them.
The incessant super-low-price mantra may be turning them off. Maybe if they combine their remodeled store look -- which reminds some observers of a blue version of Target (TGT) -- with a marketing angle that's more about convenience, product quality, or one-stop shopping than low-low prices, those customers might return.
The low-price shoppers are still shopping Walmart, because they have to. But clearly, it's going to take a different marketing approach to keep building Walmart's audience beyond there.
Photo via Flickr user Lordcolus
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