Retailers worried for Wal-Mart’s holiday cuts
NEW YORK – Wal-Mart Stores Inc. and Target Corp. posted better-than-expected quarterly earnings on Tuesday, but the world’s biggest retailer promised deep holiday discounts for consumers who are still feeling pinched — which could spell trouble for other retailers.
Wal-Mart, whose shares rose 2 percent in morning trading, said it would implement its “most aggressive pricing strategy ever” for the key holiday shopping season.
The retailer said it expects fourth-quarter sales at stores open at least a year to be up 1 percent to 2 percent and that price cuts on items like toys and electronics were already drawing shoppers.
While Wal-Mart’s plans could generate sharply higher traffic, other retailers’ shares suffered on Tuesday as the prospect of having to compete against deep discounts from the leading retailer spread little cheer throughout the sector.
For example, consumer electronics retailers, who stand to lose sales of hot items such as flat-panel televisions to Wal-Mart, saw their shares fall.
Circuit City stock fell 4.4 percent to $23.79 on the New York Stock Exchange while shares of Best Buy Co. Inc. and RadioShack Corp. each slipped less than 1 percent to $52.21 and $17.22, respectively.
Tom Schoewe, Wal-Mart’s chief financial officer, said consumers were still concerned about energy prices, even though gasoline costs have come down from a late-summer peak, and a sluggish housing market.
“At the end of the day, our customer is looking for value,” he said. “That’s what is going to make or break our fourth quarter.”
Joseph Beaulieu, an analyst with Morningstar, said Wal-Mart’s focus on cutting prices was a positive.
“Wal-Mart is … getting back to what’s made them work in the past,” he said. “The way they’re toning down the talk about fashion and talking more about discounting, that’s the kind of thing that makes that store tick.”
He said Target, whose profit beat Wall Street estimates due to strong performances from its Target and Target Visa credit cards, was somewhat sheltered from the need to match Wal-Mart’s discounts because their stores cater to wealthier shoppers and are concentrated in the northern United States rather than the South.
“I think Target can do well in a quarter that Wal-Mart does well,” he said. “In a quarter when Wal-Mart and Target both do really well, other retailers could get hurt.”
Wal-Mart shares, which are roughly flat year-to-date, rose 96 cents to $47.28 while Target rose nearly 1 percent to $58.09.