EDITOR NOTE: Amid rising inflation on both the input and consumer end, Walmart’s strategy echoes that of old-fashioned “elbows out” capitalism harkening back to the Gilded Age. Cornelius Vanderbilt, by the time he had established himself as a shipping tycoon, would use his massive size to disrupt and in some cases bankrupt smaller rivals by undercutting prices. It’s good to know that there are businesses large enough to make groceries and other items affordable with frequent sales. Businesses like Walmart can help lower your “personal inflation rate,” which matters significantly. But inflation everywhere else is going to hit your pocketbook unless you’re protecting yourself by investing in a safe haven like non-CUSIP gold and silver. Inflation is a monetary illness. And it takes a monetary antidote to inoculate your wealth from its insidious rot.
Walmart U.S. CEO John Furner said on an earnings call Tuesday that the retailer had about 30% more discounts in stores in the first quarter than the same period a year ago. He said it plans to continue to dangle deals and widen price gaps to stand out from competitors.
“Over the last 12 months, we saw our price gaps improve versus the market, and our merchants are working hard to ensure that that will continue,” he said.
The retail giant has cultivated a reputation for its slogan and focus on “Everyday Low Prices.” In its store aisle, it promotes sales — called rollbacks — on signs with big numbers intended to catch the eye of shoppers and tout how much they could save.
During the early months of the pandemic, however, Walmart and other grocers largely pulled promotions as they struggled to keep inventory on shelves. Instead of pricing stock to encourage customers to buy multiples, many retailers restricted purchases of popular items, from toilet paper to ground beef. Some retailers also slashed their orders for skipped-over items such as apparel, which led to less leftover merchandise that wound up on the clearance rack.
Walmart, however, said it’s holding the line. For the retailer, frequent sales indicate more of a return to normalcy. It is doubling down on one of its key competitive advantages as more Americans buy new clothes, teeth-whitening kits and other merchandise to go back into the world again.
The retailer beat Wall Street’s expectations for first-quarter earnings. Walmart CEO Doug McMillon said Americans “want to get out and shop” as they prepare to socialize and take vacations.
Furner said undercutting rivals on price is especially important as more shoppers feel comfortable going to different stores to compare and get the best bargain. During the peak of the health crisis, consumers tended to limit their shopping trips, buy numerous items at a single store and go to one that’s nearby.
That may change as people worry less about their safety and more about their budget while juggling a growing list of expenses again, such as commuting to the office, restaurant meals and hotel stays. “Value could be more important than convenience” this year, he said.
He said the retailer’s size and mix of merchandise, from apparel to consumer electronics, gives it an advantage. He said it can offset price cuts by selling higher-margin items, even within the same category. For instance, he said, meat, produce and bakery tend to be more profitable than some other groceries. Selling more of those items is “enabling us to maintain price positions that we have been running,” he said.
Plus, he said, Walmart’s new revenue streams, such as its growing advertising business and third-party marketplace, give it more flexibility to reduce prices without hurting its profits.
McMillon on the earnings call Tuesday recounted a memorable lesson about the power of low prices early in his career. When he worked as an assistant buyer in food in the 1990s, he said, his boss made a surprising request.
“My supervisor walked into the room with a few of us and said, ‘We’re short on our profit number for the month. I need you all to find price reductions that you can put in place quickly. Bring them to me by the end of the day.’ And I thought I misheard him,” he said. “How do you lower prices and increase profit?”
Later, he said, he came to understand “that’s the beauty of retail and mix.”
“We’ve got all these levers to be able to find places to go upstream [and] do things differently than other people are doing it,” he said.
Originally posted on CNBC