MARK 3390-Spring 2011 News Article Assignment (I)

Pricing Mark 3390-01 Name: Anna G. Salazar Due Date: March 8, 2011 Source: TIME.com http://www.time.com/time/business/article/0,8599,2023857,00.html Has Walmart's Price Chopping Come to an End? Tuesday, Oct. 05, 2010|Sean Gregory Walmart has rolled back its rollbacks. Earlier this year, the retailer tried to spark sluggish U.S. sales by lowering its prices already bargains even further. One analyst called it "an initiative that screams: Price! Price! Price!" These rollbacks, as they are known in Walmartspeak and in the company's advertising, were intended to overwhelm the shopper. In May, according to one shopping website, the price of a 40-oz. bottle of Heinz ketchup, which had been $2.42, was chopped to $1. Kraft mac and cheese, which had been going for $3.58, was reduced to $2.50. The rollback of a 50-oz. bottle of Tide laundry detergent, which was priced in the $7.48-$8.12 range, gave shoppers a $2.50 discount. Walmart expected a flood of customers to its stores, which would help lift the company's stock out of its rut and get Walmart rolling again. Instead, cutting prices depressed sales, as shoppers took the bargains and ran. For the quarter ending July 31, Walmart's U.S. same-store sales fell 1.8%. The company's same-store sales have now fallen for five straight quarters. Of the rollback strategy, Bill Simon, the president and CEO of Walmart U.S., told investors at a September conference, "It did not do what we had hoped it would do. It did, however, drive price perception. It did not drive sales or traffic." As a result, Walmart rolled back the deeper discounts, and prices started inching upward this summer. According to a new report from J.P. Morgan, the price of a 31-item basket from a Walmart store in Virginia rose 2.7% in September alone. Walmart prices have jumped 5% since the start of the year and have been at their highest levels in the 21 months J.P. Morgan has tracked pricing data. (Read about Walmart's March 2010 slump.) While Walmart may have stopped giving away the store, that doesn't mean customers will be facing sticker shock. "Walmart still stands for low prices," says David Strasser, equity analyst at Janney Montgomery Scott. Of the five retail-store chains J.P. Morgan studied (Walmart, Kroger, Safeway, Whole Foods and Harris Teeter, a 192-store chain in the Southeast), Walmart still had the lowest prices. (The Walmart basket cost $95.75 in September; Kroger, at second lowest, came in at $101.93.) (See the first Walmart in TIME's 50 authentic American experiences for 2009.) Still, the move signals a shift in strategy. Since the rollbacks didn't spur enough additional sales volume, Walmart needs to squeeze more revenues out of existing shoppers in order to satisfy

analysts, institutional investors, shareholders and employees who are hungry for domestic growth. "Walmart is under unprecedented profit pressure," says retail consultant Burt Flickinger III, managing director for Strategic Resources Group. Walmart stock, which traded at $53.57 as of the Oct. 4 market close, is essentially flat for the year and 15% off its high before the September 2008 market crash. With economic conditions not as dour as they were in late 2008 and early 2009, now could be a good time to pull off a price increase. The changes also reflect a shake-up in Walmart management. Under Project Impact, a strategy executed by former U.S. CEO Eduardo Castro-Wright, Walmart not only instituted more aggressive price-cutting but also moved to make its stores cleaner and better organized. Walmart's so-called Action Alleys, the often cluttered thoroughfares laden with promotional deals, were streamlined. But in order to make the aisles more breathable, Walmart reduced the number of items offered in the stores by about 15%. (See the top 10 toy crazes.) It turned out, however, that shoppers really liked the many brand choices, so they went elsewhere for variety. In March, Walmart began restoring 300 brands and package sizes. In late June, Castro-Wright was transferred to global sourcing, and Simon, the chief operating officer for Walmart U.S., took over as CEO. Under Simon's direction, the price rollbacks were rescinded, even more items were stocked on the shelves and Action Alley was recluttered though Simon insists the aisles will still be less cluttered than they were in the old days. The company will meet with the investment community at its Bentonville, Ark., headquarters this week. There, executives might offer more hints about Walmart's direction. Overseas expansion remains robust. International sales rose 11% last quarter, Walmart added almost 5 million sq. ft. (465,000 sq m) of overseas retail space during that period and the company plans to keep expanding outside the U.S. Things are looking up in places like Brazil and China. Now Walmart hopes to see if higher prices will prop up America.

The summary of the article: Wal-Mart created an image to the consumer that Wal-Mart has the Always Low Prices products in the market. Wal-Mart tried to do a strategy of lowering the prices as much as possible to that it will attract the customers, but in fact this strategy failed. Wal-Mart was losing revenue and was looking at a downfall in profit. So Wal-Mart increased the prices, but remained the lowest price store among competitors. Wal-Mart tried to also decrease the number of product on the shelfs in order to create more demand, but that didnt work. Consumers turned into other stores for more variety of products since Wal-Mart was not offering them. Eventually Wal-Mart had to turn back to offer more variety of products that the consumer wanted in order to attract more customers into the store and increase its revenue. Pricing Lessons: What I learned from this article and how it is related to what we have learned in class is that Wal-Mart is one of the most successful retailers in the world right now, and it has been that way

always because Wal-Mart has had a pricing strategy that has been to always provide low prices to its consumers. In the article it states that even though Wal-Mart lowered even more its prices than they already were to almost bargain prices consumers did not really show that much interest for a long time, it says that it did drive price perception (Chapter 1) but it did not drive traffic or sales. Consumers perception of Wal-Marts price was indeed lower prices thats what the consumers perceive when they go to Wal-Mart because they know that Wal-Mart will always have low prices. At the same time Wal-Marts sales started to drop that is because the bargain prices Wal-Mart was now offering were too low that consumers thought instead of low prices they were now thinking that too low prices might indicate low quality products. After reading this article I think that Wal-Mart should not go lower on its prices, in my opinion Wal-Mart prices are already low and if they would go lower people might start to think as the products as being too cheap. If this was the case then consumers would go shopping at target since target is a little bit more expensive than Wal-Mart but consumers will know they will get a better quality product by paying a little bit extra money. I as a consumer like to go to shopping at Wal-Mart since it has more variety of products but if I want a more quality item I would go to target. In this article in my opinion the chopping down even more its prices is a bad strategy Wal-Mart already has existing consumers that will always be loyal to go shopping at Wal-Mart that by reducing its prices even more will not get them newer relationships in fact they might lose existing ones.