Walmart Tones Down Holiday Toy War

Discussion
Dec 16, 2010
Tom Ryan

By Tom Ryan

Just as Santa Claus always came to town, Walmart’s deep discounts
on toys regularly arrived to drive holiday traffic and drive out competitors.
But apparently not this year.

According to a company e-mail dated Nov. 30 obtained
by Bloomberg News,
U.S. store managers received instructions to increase an average of 1,800 types
of toys per store. The prices were hiked “to better enable your store and
the company to have a successful financial month,” said the e-mail.

Not
surprisingly, a Walmart spokesperson assured Bloomberg that the discount
giant remains committed to the toy category. The retailer had nearly doubled
the floor space devoted to toys in most stores this year and the pages in its
toy catalog had more than quadrupled, he said. On Wednesday, Walmart also unveiled
a round of price cuts on the “Hottest Toys and Electronics,” such
as $5 off Kung Zhu Hamsters.

Regarding the price increases, the spokesperson
said they reflect temporary discounts across products, including toys, that
ended Nov. 30. “Once a
rollback ends, the item returns to its original everyday low price,” he
said in an e-mail.

Still, toy market observers said any move to limit margin
erosion would be in line with an overall shift by Walmart to deemphasize the
category.

“Walmart felt like they weren’t making as much margin,” Jim Silver
of timetoplaymag.com, a toy review site, told The Baltimore Sun. “They
make more money in electronics and computers, so they’d rather compete there.”

Carter
Keithley, president of the Toy Industry Association, a trade group, added that
while many retailers have shrunk or exited the category due to past price competition,
many are coming back as Walmart’s less aggressive
stance and the exit of KB Toys has made the category more profitable. Also,
although the category is missing a must-have item to the level of Tickle Me
Elmo or Cabbage Patch Kids in the past, it is being helped by the success of
traditional toys that are incorporating interactive and technology components
as well as the arrival of more affordable toys (such as Squinkies and
Zhu Zhu Pets) that are working with today’s budget-conscious shopper.

The biggest beneficiaries, Craig Johnson, president of
Customer Growth Partners, told Bloomberg, are Target and Toys “R” Us.
Both have gained market share in toys against Walmart this year by expanding
their toy mix and overall distribution.

Discussion question: How important is it for Walmart to be known as
the destination for toy deals? What do you think of Walmart’s apparent downplaying
of the toy category?

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12 Comments on "Walmart Tones Down Holiday Toy War"


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Carol Spieckerman
Guest
10 years 5 months ago

Doubling floor space and quadrupling toy catalog pages is “downplaying”? I think not. Walmart isn’t about to cede its toy market share to others and if anything, the price increases demonstrate confidence that breadth of selection will trump price.

How many times does it need to be said that Walmart does not claim to have the lowest prices in every category and on every item? Is a shopper really going to ditch toys at the end of the weekly (or twice weekly) shopping trip then drive (depending on the area) many miles to buy toys at another retailer that may or may not offer the same items for a few pennies less?

One more question–when in the history of retail did raising prices become a back-down strategy?

Roger Saunders
Guest
10 years 5 months ago

Based on “Net Promoter” scores from the December, Consumer Intentions & Actions (CIA) Survey, Walmart equals Toys R Us with a +22.9 scoring with consumers who shop their MOST often for toys. That tops Target’s +14.6.

Consumers place a higher value on the “price” factor of toys at Walmart, compared to these two competitors. However, their shoppers are also looking for location, convenience, selection, and Walmart shows up well in each of these categories. Toy R Us holds the solid lead when it comes to the “newest toys.”

With 50% of toys having been purchased by the first week of December, and the merchandising mix that Walmart has in this category, they look to be making the right pricing decision at this stage…move the margins up. The consumer is still going to be walking through the Walmart store for holiday shopping, and the added toy that may be needed, is likely to be added to the shopping cart.

This strategy works in 2010.

Ben Ball
Guest
10 years 5 months ago

Broaden selection and advertising.

Markdown early to attract bargain hunters.

Increase margin when the remaining shoppers in the market are compelled to buy.

What’s wrong with that strategy?

I have never been able to see the wisdom in offering the deepest discounts of the year on items when the shopper is most likely to buy them no matter what. As a veteran of many a Christmas Eve trip to the jewelry store — I know whereof I speak.

David Livingston
Guest
10 years 5 months ago

I’m not going to second guess anything Walmart does with regards to toys. They have driven out a lot of retail so maybe they don’t have to be so aggressive now. Who can they knock out now? What–Kmart? Probably not worth the extra effort.

Ted Hurlbut
Guest
Ted Hurlbut
10 years 5 months ago

While we don’t have access to monthly sales figures from Walmart, we do know that November was a stronger than expected month for most major retailers. Could it be merely that Walmart took a look at their sales numbers and determined that they were likely to leave some important margin dollars on the table in the toy category if they left prices where they were? Even price-driven retailers like Walmart have to actively manage their margins in order to hit their gross margin dollar objectives.

Don Delzell
Guest
Don Delzell
10 years 5 months ago

This is not a holiday where toys are driving consumers to shop. Many factors influence this, but relative to previous years and different economic and industry characteristics, this year is not a “toy” year. It’s not just the lack of a signature toy, but across the board consumers have deemphasized toys. Some of this has to do with the down-aging of technology, some of it with the continued unemployment, and some of it with the uncertainty in consumer confidence shifting dollars to other areas.

So…it makes incredible sense that WMT is not blasting low prices on toys. If heavily promoting toys is unlikely to drive incremental traffic, then why do it? There ARE categories and merchandise types which ARE driving incremental traffic. In those, WMT remains extremely competitive and focused. Once again, WMT management displays intelligent behavior in response to specific market conditions.

Michael Boze
Guest
Michael Boze
10 years 5 months ago

Toys are the kind of merchandise category mature retailers evolve away from in favor of a year-round business that has better margin yields.

The long-term toy business will belong to the specialist that flexes their businesses with pop-up locations for the peak season.

A question Walmart did not review is which merchandise categories got crunched to allow the doubling of floor space?

Charles P. Walsh
Guest
Charles P. Walsh
10 years 5 months ago

I don’t agree that Walmart is ceding its toy business to its competition, in fact it is the opposite. They are seeking to regain their core customer and marketshare through broadened assortments and EDLP. Walmart took an early leadership position before the holiday season on aggressive rollbacks in the toy department. Those rollbacks have served their purpose and Walmart is returning those items to their already everyday low price.

J. Peter Deeb
Guest
10 years 5 months ago

Perfect strategy! Lure them in when most consumers are buying, then margin up for those that have to buy! Isn’t retailing still about margin averaging? It looks to me like Walmart is managing the sales and profit mix very well!

Ed Dennis
Guest
Ed Dennis
10 years 5 months ago

Walmart is cashing in on the experience of its customers. For years now, Walmart has trained their customer base. Their experience has been that Walmart has the inventory and the best price. As long as no one proves the consumer’s beliefs are irrational, they will continue to buy from Walmart and assume the have gotten the best price. This is exactly what every retailer works for–consumer trust! And WalMart will continue to keep this trust as long as they don’t take their customers for complete fools.

M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
10 years 5 months ago

Walmart has to pay for their grocery business somehow. I agree with those who speculate that WM’s grocery operations could not survive on their own. Toy margins help support the food departments.

Susan Rider
Guest
Susan Rider
10 years 4 months ago

Walmart is the one stop place for many consumers and the perception is that Walmart will have the best price and the product will be there. If they lose that image and core competency, they only open the door for the competition to steal market share–if any of the competition is paying attention!

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