Sounds like WMT's cover for the need to raise prices. Act like they are increasing employee benefits and are being good Americans.
A big change at Wal-Mart?
A little-noticed management shift at the country's biggest retailer could have major implications.
December 22, 2003: 10:40 AM EST
By Justin Lahart, CNN/Money Senior Writer
NEW YORK (CNN/Money) - A little-noticed shift in the management ranks at Wal-Mart could have far-reaching consequences.
Two weeks ago, the country's biggest retailer said that executive vice president for general merchandise Don Harris, a 23-year veteran of the company, was retiring at 46. His duties are now split between Claire Watts, who was promoted to executive vice president for merchandising, and Doug Degn, executive vice president for food merchandising.
Although the news got virtually no play in the market, which at this time of year is focused on the tenor of holiday sales to the exclusion of everything else, it did raise the eyebrows of a couple of analysts, who believe it may represent a shift in Wal-Mart's (WMT: Research, Estimates) strategy of aggressively keeping prices low.
With Christmas just around the corner, the management shift came at an odd time, wrote Banc of America Securities analyst Aram Rubinson in a research note. He also said that lower prices at Wal-Mart do not appear to be bringing in increased volume as in the past -- a point brought home Monday when the company said December sales are running at the lower end of its forecast range. Other retailers, in contrast, appear to be meeting or exceeding their holiday sales expectations.
UBS Investment Research analyst Gary Balter also thinks that Harris' exit may signal a change in pricing strategy. Disappointing sales over Thanksgiving drove home the need to freeze profits on a per-item basis, he wrote in a note published Thursday, and Watts and Degn are not traditionally price-oriented players like Harris was.
Balter thinks the change in strategy will lead to higher profit margins at Wal-Mart, and as a result raised his rating on the company to buy from neutral.
There are other reasons Wal-Mart might want to get less aggressive on pricing. It's a big importer -- one tenth of direct U.S. imports from China go to Wal-Mart -- and import prices have for the first time in years begun to edge higher. It is also becoming the subject of gnawing political criticism over the "Walmartization" of the U.S. economy, where highly skilled manufacturing jobs get shipped overseas, and U.S. workers are forced into low-paid jobs as retail clerks hawking foreign-made wares.
To counter the critics, Wal-Mart could purchase more U.S.-made goods, or increase benefits and salaries. To make up for those rising costs, it might have to raise prices.
If there really is a strategic change on pricing taking place at Wal-Mart (which didn't return calls in time for publication of this column), it would have big implications. Wal-Mart's annual domestic sales of $200 billion represent more than 8 percent of U.S. non-auto retail sales. If it eases up on the drive to cut prices, retailers all over the country, which have been squeezed hard by competition from Wal-Mart, are going to breathe easier.
Heck, some of them might even try raising their prices. Then inflation wouldn't look quite as muted as it does now. |
