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Wal-Mart’s Aggressive Pricing Strategy Puts More Pressure On Margins For Holiday Season

  • Written by Mike Santos
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walmart_capThe gloves came off last week and the pricing wars of 2009 are underway. When Wal-Mart began selling hotly anticipated books on Walmart.com for $10, it was a clear signal that retail giant is planning to grab even more market share coming out of the recession. The response from competitors to that move was also a signal that other retailers are going to have manage pricing and markdowns in near real-time this holiday season in order to stay competitive.

When Amazon.com Inc. matched the $10 prices, Wal-Mart lowered its prices to $9. Then Target jumped into the fight and started offering the same titles at $8.99. Wal-Mart then threw a smiley in their face by dropping down to $8.98. Of course, this blood bath of dropping well below list prices on hot new items was bad news to Borders, Barnes & Noble and other independent booksellers (the American Booksellers Association has already asked the U.S. Department of Justice to investigate the price war to determine if it constitutes illegal predatory pricing), but it was also a wake-up call to retailers in other verticals as well.

This week Wal-Mart CEO Mike Duke told Wall Street analysts that the retailer plans to aggressively reduce prices heading into the holiday season. He pointed to a current promotion that includes a 27% discount on the popular RipStik skateboard, priced at $49. With analysts concerned that Wal-Mart’s sales may be ready to peek at $400 billion a year, Wal-Mart is looking to drive more consumers into its stores and increase sales per store.

In addition to driving per store, an even bigger market share grab could come from Wal-Mart.com, as the discounter looks to steer more eyeballs and shopping carts to its Web site this holiday season. According to recent research from Compete, Inc. the big retailers are dominating more traffic from online shoppers, with the Top 25 retailers increasing their session share over the remaining Top 175 online retailers by 12% from January 2006 to July 2009.

While Amazon has blown away the pack with 39% session share, according to Compete, Wal-Mart.com is likely to increase its session share from 16% with aggressive pricing promotions this holiday season.