Wal-Mart Stores Inc. (NYSE: WMT) has decided to increase the ante as it tries to take sales away from other big-box retailers, consumer electronics chains and department stores. It can afford the plan, but some of its rivals cannot. The world’s largest retailer announced its stores will remain open for longer hours than usual over Thanksgiving weekend. It also announced:
Walmart is taking the historic step to ensure wishlist items like the Apple iPad2 are available for customers during a special one-hour event on Thanksgiving.
This year, Walmart will be kicking off its in-store specials at 8 p.m. on Thanksgiving Day, followed by its big electronics event at 10 p.m. and a weekend full of savings starting at 5 a.m. on Friday, November 23.
In other words, it will keep its stores open for an unprecedented number of hours.
Walmart can do almost anything it wants within its industry. With annual sales of more than $450 billion and more than two million employees, it has the power to drop prices because of its leverage with the suppliers for the items it sells. It also can afford to have some products sold in its stores as loss leaders, meant to get people into its locations, where they may buy several things beyond those with steep discounts.
Other large retailers almost certainly will have to match Walmart’s plan. For some like Target Corp. (NYSE: TGT), the matching is affordable. Target may not be as large as Walmart, but it is large enough to take a chance that discounted products will create foot traffic.
Some retailers cannot match Walmart’s programs, or if they do, the consequent damage to their margins could rob them of profits from the holiday season, which are key to their earnings for the entire year. High on this list are weaklings like Best Buy Co. Inc. (NYSE: BBY) and the Sears and Kmart units of Sears Holdings Corp. (NASDAQ: SHLD).
Walmart’s plan should get it enough additional market share and traffic so that increased sales are likely to be profitable, even if margins on some products it sells are negative. The “foot traffic” tactic probably guarantees that. But smaller rivals do not have the pricing leverage, brand or marketing power Walmart does. That means as they match Walmart on price and the number of hours they stay open, the consequences can only be bad.
Douglas A. McIntyre