Somebody should tell Wal-Mart they’re doing it wrong.
In what the Wall Street Journal described as an attempt to lure customers back to its brick-and-mortar locations, Wal-Mart has been quietly raising prices for some food and household products sold on its US website, including Kraft Macaroni & Cheese, Colgate toothbrushes and bags of Purina dog food.
Of course, we weren’t in the room when this plan was being vetted by whoever is in charge of corporate strategy at the retailing behemoth. But we find it hard to believe that nobody pointed out the simple fact that, if customers notice that prices have been raised on Wal-Mart’s website, customers can simply buy the same product, or a similar one, from Amazon or another competing retailer.
Before this latest shift in strategy, Wal-Mart previously planned to keep online and in-store prices equal for many of its most popular products, WSJ says, unless competition organically drove them lower.
But now the company is experimenting with a new pricing system that is raising prices on certain goods that would otherwise be unprofitable to ship.
To be sure, the pressure on Wal-Mart to drive foot traffic to its stores has never been greater, especially since the now-Amazon owned Whole Foods Market has been slashing prices left and right in a push to wrest market share away from its rivals. Meanwhile, the strategy of charging more online has been used by other big-box retailers like Costco Wholesale Corp. but the move is unusual for Wal-Mart, which has long embraced the strategy of outcompeting on price in accordance with its “everyday low price” message, and has worked to keep online prices at least as low as shoppers find in its 4,700 U.S. stores.
In some cases, product listings on walmart.com show an “online” and “in the store” price. Often the online price matches Amazon. But this system is changing now that the store is focusing on preserving its in-store dominance while also trying to expand its online presence.
“We always work to offer the best price online relative to other sites,” a Wal-Mart spokeswoman said. “It simply costs less to sell some items in stores. Customers can access those store prices online when they choose to pick up the item in store."
According to WSJ, a box of Kraft Thick n’ Creamy Macaroni & Cheese Dinner was $1.48 on walmart.com as of Friday, the same as Amazon’s price but more than Wal-Mart’s $1.28 store price (listed online). A similar comparison for a twin-pack of Betty Crocker Hamburger Helper showed the price as $3.30 online. but $2.50 if purchased at a Wal-Mart store in Illinois.
Wal-Mart is investing billions to boost e-commerce sales, which rose 60% in the US in the most recent quarter, but some shareholders worry the effort could drag on profits.
Marc Lore, head of Wal-Mart’s U.S. e-commerce unit, told investors in October that “this year should be the largest loss in e-commerce, and we’ll see slight improvement next year.” The company overall expects profit margins to be slightly down this year. It is scheduled to report third-quarter earnings on Thursday.
Wal-Mart e-commerce workers responsible for product sales have been instructed to boost profits along with sales, according to the people familiar with the situation, and are “no longer obligated to follow store pricing,” one of them said.
The company is also asking suppliers to sell more of their merchandise in bulk versions instead of single boxes, an effort to increase order sizes and make them more profitable, the people said.
For inexpensive items, “there’s no cheaper way to get these products to consumers than have them come in the store and pick it off the shelf themselves,” Lore said at last month’s investor conference. He said he hopes shoppers will come to stores for the best price and place larger orders online to offset the cost of shipment.
In an effort to try and compete with Amazon’s “Amazon Prime” service, Wal-Mart offers free two-day shipping on millions of items on any order above $35.
Lore, who founded online retailer Jet.com Inc., which Wal-Mart bought last year for $3.3 billion, said that since he became head of Wal-Mart’s U.S. e-commerce division, the company has become more experimental with online marketing and pricing, including offering more discount codes and working with companies that publicize discounts through mobile applications.
Amazon is also trying new pricing models. It started lowering prices on products sold by outside vendors by as much as 9% in recent weeks, ratcheting up a price war with other retailers ahead of the holidays.
The company is also asking suppliers to sell more of their merchandise in bulk versions instead of single boxes, an effort to increase order sizes and make them more profitable, the people said.
For inexpensive items, “there’s no cheaper way to get these products to consumers than have them come in the store and pick it off the shelf themselves,” Mr. Lore said at last month’s investor conference. He said he hopes shoppers will come to stores for the best price and place larger orders online to offset the cost of shipment.
The change in Wal-Mart’s strategy comes at a particularly risky time – the holiday shopping season when retailers typically book their highest revenues and profits. If the strategy works, investors should have some idea of exactly how successful it has been by the time the company publishes its fourth-quarter earnings report.
However, raising prices in an era of unprecedented online competition could be particularly damaging. Considering the rapid growth Wal-Mart has seen in its online sales this year, raising prices could cause that trend to come to a complete stop.
via http://ift.tt/2iPRLGp Tyler Durden