AP
Wal-Mart Launches Price-Cutting Plan
Monday July 23, 4:27 pm ET
By Anne D'Innocenzio, AP Business Writer
Wal-Mart Starts "Aggressive" Back-To-School Discount Plan, Will Cut Prices on 16,000 Items

NEW YORK (AP) -- Wal-Mart Stores Inc., the world's largest retailer, set the stage for price wars Monday as it announced it's cutting prices on more than 16,000 items starting this week in a bid to turn around sales for the critical back-to-school season.

Shares of key retailers such as Sears Holding Corp. and J.C. Penney Co. were down, as investors worried about how ensuing price wars would affect profit margins. Wal-Mart slipped 2 cents to $48.04.

Wal-Mart's price cuts, which range from 10 percent to 50 percent, will be backed by a new ad campaign on how to save money as gas prices remain high and kids head back to school. The cuts are deeper and involve even more items than in the year-ago period and top the 11,000 items discounted in advance of last year's holiday season, according to Melissa O'Brien, a company spokeswoman.

Wal-Mart has been playing up its low prices since late last year after getting hurt by a focus on trendy merchandise in an effort to get affluent customers to buy more than just groceries. While the upscale strategy worked in electronics, it failed in home furnishings and apparel, resulting in sluggish sales since last fall.

So far this fiscal year, Wal-Mart has averaged a same-store sales gain of a meager 1 percent, compared to rival Target Corp.'s 4.1 percent increase, according to Thomson Financial.

Same-store sales are sales at stores open at least a year and are considered a key indicator of a retailer's health.

In April, Wal-Mart's same-store sales dropped -- the weakest performance since it began publishing monthly sales in 1980.

Last year, Wal-Mart's same-store sales averaged a 2.1 percent increase, while Target had a 4.9 percent increase.

Wal-Mart did enjoy some improvement last month when it posted a better-than-expected same-store sales gain of 2.4 percent, indicating that its more aggressive discount strategy may be resonating with shoppers.

"We'll provide families savings where it counts, and continue to work closely with key suppliers, reduce packaging and lower shipping costs as we steer this program through fall and beyond," Bill Simon, chief operating officer, Wal-Mart Stores U.S., said in a statement.

Retail consultant Burt Flickinger III said that while he applauded Wal-Mart's move, he noted that the jury is still out on whether it will be effective.

"While it is a smart strategic move, it is going to add profit margin pressure, " Flickinger said. "There is also no guarantee that it will increase customer count and sales." He noted that rivals such as Target Corp. have capitalized on Wal-Mart's weakness in recent months as the biggest retailer confused shoppers with its upscale strategy. He also added that Wal-Mart faces increased competition from drug and grocery chains who are aiming to get a bigger share of the back-to-school business.

Under Wal-Mart's new pricing plan, $1 will be able to buy 4 wide-ruled notebooks, 2 bottles of Elmer's glue (4 oz.) and a 24-pack of crayons. A $50 budget will be able to purchase a week's worth of school clothes, and $80 will buy two pair of prescription glasses at the Wal-Mart Vision Center.

The price cutting campaign comes as Wal-Mart has also been making changes to its merchandising team. The company said on Friday that Claire Watts, a top Wal-Mart apparel merchant, has resigned. The executive had been behind the failed makeover to trendy items from low-price basics.

As part of the changes, Wal-Mart promoted Dottie Mattison, formerly chief merchant for Walmart.com, to senior vice president overseeing women's apparel, jewelry, shoes and accessories as well as product development. Mattison will be based in the company's fashion office in New York City.