No Discounting? Boy, that was quick.

I cannot recall the last time a common “meme” was so quickly proven to be false in the financial markets and/or analyst community. As mentioned here yesterday , I do not believe that retailers would win their game of chicken, holding out as long as possible before slashing prices to spur sales.

Now, a FULL WEEK BEFORE Thanksgiving, Wal-Mart (WMT) has looked into the eyes of their fellow retailers and called their bluff: the retailing giant has fired a broadside — not a shot across the bow, but a fusillade into the flank of the not-so-good ship Toys-R-Us (TOY). Upping the ante from previous price cuts, Wal-Mart will press their specialty adversaries on price while they are somewhat vulnerable to margin compression.

To WMT, they — apparently — couldn’t care less about Toy margins. They simply want to bring customers into the store, margins be damned. To Toys-R- US, the X-mas season is 40% (or more) of their year’s sales. A bruising fight will hurt revenues, margins, profits, and ultimately their stock price and market cap.

Here’s an excerpt from this morn’s WSJ:

Wal-Mart Stores Inc. has launched the Great Toy War of 2003 and its top soldier is Hokey Pokey Elmo.

In late September, a full three months before Christmas, and a month before hot holiday items normally are promoted, Wal-Mart Stores slashed the price on Fisher-Price’s newest dancing doll to $19.46 — a stunning 22% discount to the Toys “R” Us price of $24.99.

Then, by mid-October, Wal-Mart had cut prices on more than a dozen toys. A survey of the prices for 15 popular toys conducted by Banc of America Securities found that Wal-Mart’s prices were 12% cheaper than Toys “R” Us and 8% less than prices at discount retailer Target.

The steep and early price cuts are roiling the industry. Tuesday, Toys “R” Us acknowledged Wal-Mart’s moves caught it by surprise and hurt its third-quarter results. Its stock price fell 5.4% Tuesday in New York Stock Exchange composite trading, after falling 11% Monday when company’s earnings came out.

While parents may love the lower prices, other competitors are frustrated, saying they are hard-pressed to match prices below their costs. Yet they can’t afford to lose more market share to Wal-Mart . And manufacturers fret that the discounting will cheapen their brand names, quash innovation and prompt consumers to buy only when toys are on sale . . .”

On Wall Street, beware of Analysts bearing wishful thinking — its a sure path to the poor house . . .

Source:
Wal-Mart Fires the First Shot In Holiday-Toy Pricing War
By Ann Zimmerman, Joseph Pereira and Queena Sook Kim
Wall Street Journal, November 19, 2003

http://online.wsj.com/article/0,,SB106920927210407600,00.html

Wal-Mart kicks off toy price war
Report: No. 1 retailer slashes tags on popular and hard-to-find items, surprising Toys “R” Us.
CNN/Money November 19, 2003

Related Story:
 Toys ‘R’ Us to Close 180 Stores
11/18/03

http://online.wsj.com/article/0,,SB106908127475163400,00.html

Category: Finance

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

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