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[8 comments]

Walmart Launches Preemptive Strike in Canada

July 3, 2012

In an apparent early move in preparation for Target's planned entry into Canada in Spring 2013, Walmart Canada last week announced a program to lower prices on 10,000 products in July. The sale, which promises to save customers $50 million next month, is said to be the biggest in Walmart Canada's 18-year history.

Walmart Canada earlier in the week announced plans to open 47 hiring centers in efforts to add 4,000 new employees over the next two years. By the end of 2013, the company expects to spend some $750 million to open, relocate or remodel 73 stores. Included in the projects are most of the 39 former Zellers stores for which Walmart Canada purchased leasehold rights in June 2011 and which will reopen as Walmart stores in this fiscal year.

Walmart, which entered the Canadian market in 1994, has 333 stores in the country.

The campaign to lower prices covers about 3,000 grocery store items, from dry goods to fresh produce, apparel, electronics, health and wellness products, hardware and home merchandise. The campaign launches June 29 and runs throughout the month of July.

"We are committed to lowering the cost of living for shoppers this summer," said Lee Tappenden, chief merchandising officer for Walmart Canada, in a statement. "The common theme we hear is everyone is looking and needing to save money now, before the autumn back to school season begins."

In January 2001, Target acquired lease rights to 220 Zellers stores from the Hudson's Bay Co. for $1.825 billion. So far, 110 Target sites have been announced for 2013.

FINANCIALS:     [NYSE:WMT] [ ]

Discussion Questions:

Discussion Questions: What steps should Walmart be taking to protect its position in Canada? What are the pros and cons of launching price wars to fend off new competition?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

Generally speaking, what's your view on the effectiveness of price wars in fending off impending competition?

Comments:

It's not that Target won't cause some ripples for Walmart here in Canada, but the reality is, they'll cause tsunami waves for other retailers including (and most likely) Sears Canada. No one here is too worried about how Walmart will fare when Target gets going. They're viewed as a bit of an unstoppable juggernaut up this way. However, if you listen closely, you can almost here the bag pipes playing outside the doors of a number of other retailers.

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Kevin Graff, President, Graff Retail

Leave it to Walmart to lead the race to the bottom. And what's the message to the consumer? "We've been gouging you on this stuff for years but now that there's a competitor in town, we'll treat you fairly okay?" Nice. The truth is most Target loyals shop there for reasons other than the lowest absolute price. Rather, it's a value equation based on store experience, product quality and price. Walmart just doesn't get that whole store experience thing and how could they really, when they look at the universe through the lens of price competition alone.

Ironically, I doubt that Walmart will be the worst hit as a result of the Target entry -- they're two very different shoppers. Chains like Canadian Tire, The Bay, Sears Canada and Winners will take it head on and frankly, that's a good thing. The lack of competition in Canada has traditionally been woeful.

Doug Stephens, President, Retail Prophet

One thing I have noticed with Walmart in Canada when looking at individual store sales in various markets, is that their sales per square foot is consistently a few points below average, while in the USA they are consistently about 25% above average in any given market. If they can lower prices, then great. They probably need to.

Lucky for Walmart, Target is taking over "B" locations from a failed retailer, smaller stores, and Target must have to content with the failed location jinx. Target is good but they are not that good, as we all know. It's no secret that Walmart operates larger, higher volume, and higher sales per square foot stores. If anything adding Target in the market will help push out smaller and weaker competitors, allowing Walmart to regain any sales lost to Target.

One pro in this situation is that there will be fewer casualties as there have been in the USA. The other pro is Target is at a huge disadvantage having weaker site in ancient "B" locations. So Target might actually be a weaker competitor than the competitors that are being displaced. Walmart will come out a winner. Walmart gets to start a war and make it look like Target started it, and shift any anti big-box blame onto Target. Most likely Walmart will end up with more market share post Target than pre Target.

David Livingston, Principal, DJL Research

Walmart is lowering its pricing because of Target's entry into the market. I think this sends an interesting message to consumers, and its competitors regarding its current pricing practices.

To the consumers it says, "We charged you more than we might have in the past because we didn't have a competitor we were concerned about." To the current competition it says, "If you thought we were tough before, look out because we are going to be tougher."

All of this may bode well for consumers in the short term, but it likely means that they will ultimately have fewer retailers to shop at in the future.

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Steve Montgomery, President, b2b Solutions, LLC

I have to smile at statements like this..."We are committed to lowering the cost of living for shoppers this summer." No retailer should ever lower their prices to "commit to lowering the cost of living for the shoppers." Retailers should ALWAYS charge the most they can that fits their marketing tactics, positioning and volume projections. Retailers are not charities. They are businesses.

The comments are probably correct that Walmart is considerably more insulated from the Target Canada introduction than the other retailers. However, Target pays more attention to Walmart pricing than they should and if they react to this move by Walmart, it will take considerable funds out of their introductory war chest. That alone could have very positive effects for Walmart in the long term.

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Gene Detroyer, Professor, Independent

In Canada or the U.S., Walmart's number one competitor is still Walmart. Having spent years in investing in systems and practices that created the ultimate "Lowest Price" environment, Walmart has steadily upgraded its stores and offerings over time, hoping to expand their customer base beyond the most price sensitive. In doing so, they predictably lost their edge on price. Coupled with traditional retailers finding new ways to improve their value proposition, the brain-trust from Bentonville now find themselves back in the position of establishing their "Price" superiority.

Fortunately for Walmart, they are still best positioned to win any long-term price war that emerges from these new price cuts. However, cutting margins will certainly call into question any investment they made in upgrading facilities and products and will likely not produce the EBITDA Walmart and their investors were hoping to see.

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Mark Heckman, Principal, Mark Heckman Consulting

Agree with many of the comments.

I don't see the price play being quite right to protect against Target. In fact it could make Walmart less attractive to those who might be in Target's target (sorry!). However, it will likely cause pain to other retailers and help Walmart retain or gain via these other shoppers when Target enters.

I also agree with David Livingston that many of the Zellers sites don't seem ideal for Target. They will not only have to support their own growth, but also work to grow traffic in many of the seemingly empty malls that Zellers stores were found in.

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Matthew Keylock, Senior Vice President, New Business Development and Partnerships, dunnhumbyUSA

Walmart owns the low price mantle and a move like this is just the natural marketing activity for the low price leader. Yawn....

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Mike Osorio, Senior VP Organizational Change Management, DFS Group

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