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Friday, November 03, 2006

Wal-Mart Cutting Electronics Prices Isn't the Answer to Their Problems Either

Wal-Mart (WMT) is at it again. They are cutting, well slashing actually, prices on many consumer electronics in an effort to do anything to get people into the stores ahead of the holidays.

Since the company just announced it expects flat same-store-sales this isn't out of the company's strategy. They used to slash toy prices around Thanksgiving to use them as a loss leader to draw customers in and keep them out of Toys R Us. This is not any different.

It is essentially a scorched earth or poisoning the well strategy. Reuters said that the price cut on a Panasonic 42" Plasma TV was down $500.00 to $1,294.00. If it is an apples to apples comparison it seems like it is going to be hard for them to do this and make any money. This is just an attempt to drive up the same-store-sales in my opinion.

Bext Buy (BBY) is down 1.5% at $52.25, Circuit City (CC) is down 2% at $25.55, Radio Shack (RSH) is down 2.5% at $17.10, and even Conn's (CONN) is down almost 3% at $23.00. Other large retailers today are probably thinking Lee Scott is Darth Vader, assuming they didn't already.

Wal-Mart can cut prices and lose money on many items, but the only thing they can do is live up to the slogan of "Always low prices." They haven't changed the fact that it is just an unpleasant experience from the top to bottom. They haven't changed that many of the products are as generic as the cereal boxes and soap boxes with no name or brand just like in the movie “Repo Man” from the 1980's. The lines are an issue there, and the crowd of people at their stores isn't exactly the CostCo (COST) crowd. Their shelves are also messy like all the kids got to knock things down.

Someone needs to tell Wal-Mart that their prices are low enough. Simply poisoning the well isn't going to help the industry. Wal-Mart has shown they are ready to change their image, but they need to get past price-price-price. They have said that they are opening different styles of stores for several different regional demographics. They recently pleased Wall Street at their last analyst meeting, but those gains are gone. At $1,000+ for a loss leader, they are sure going to have to sell a lot more generic pasta to make it up.

I won't even slam the company over the ongoing argument that they are responsible for sending so many jobs overseas. Money chases cheaper labor. In an international scope and in a world where no place is farther away than a 20 hour plane trip you can't stop that. But it is just unpleasant going there. When my dad used to have a Sam's Club card he used to joke that he wanted my mom to take his card of his wallet if he had a heart attack so the doctors and paramedics wouldn't know he went there. Now how pleasant of an image is that?

If the street thought this was a good initiative the stock would be up. But Wal-Mart (WMT) shares are down 1.55% at $47.54 on the day.

The only smart thing I have noticed about Wal-Mart is that they at least went out long ago and bought up all the defamatory Wal-Mart web domains they could think of. Guess who the original registrant was for the domain name happens to be: Wal-Mart.

Jon C. Ogg
November 3, 2006

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