Is Walmart Quietly Reversing Its Price Rollback Strategy?

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August 18, 2010

A JPMorgan Securities pricing survey indicates Walmart is raising prices in some markets, indicating a potential reversal of its price rollback strategy.

In line with a recent UBS report that Walmart’s price rollbacks are not meeting “internal return thresholds,” a JPMorgan Securities study reveals nearly a 6 percent increase in prices in a Virginia Walmart Supercenter over a recent six-week period.

This represents the largest sequential price increase taken by Walmart since JPMorgan began regularly studying the retailer’s pricing since January 2009, according to a New York Post article widely quoted by various financial publications. For the period between the last week of June and the first week of August, Walmart’s prices on certain items – such as Windex, Quaker Oats instant grits and Tide -- increased by as much as 50 to 65 percent, according to the report.

"It's too early to tell whether or not Walmart is truly slowing down the aggressiveness of its Rollback campaign," JPMorgan analyst Charles Grom said in a report to clients Aug. 10.

Analysts believe Walmart has implemented overly aggressive price cuts, which have curtailed revenue and profits as foot traffic has slowed. Same-store sales at U.S. stores fell 1.1 percent during the 13 weeks ended April 30, 2010.

Although Walmart continues to lead the market in low prices on key groceries and staples compared to mainstream supermarkets, its price dominance is narrowing –– to 10.4 percent in July from 16 percent in June –– according to Grom.

Industry observers see these price increases as a signal that a recent top management reorganization at Wal-Mart “is bringing unusually swift changes,” the Post reported. Earlier in August, John Fleming resigned as the company's chief merchant, one month after Bill Simon replaced Eduardo Castro-Wright –– now heading Walmart's global sourcing and Global.com –– as CEO of the retailer’s U.S. division.

In a meeting with vendors and buyers at the end of July, Walmart executives announced an aggressive plan to boost sales and repair strained supplier relations, a significant departure from the Project Impact program initiated by Castro-Wright, which included price rollbacks, SKU reductions, dictatorial supply chain initiatives and promotional display reductions to give stores a cleaner look.

"You are officially unleashed to run your business," Walmart’s President and CEO Mike Duke reportedly told buyers at the July meeting.

In other Walmart news, Asda’s CEO said he believe the U.K. retailer’s premium private label products have room for improvement, noting that the chain needs to focus more on quality and not just price.

"We have got to be the best value. What we have been is the best price,” he said, following Asda’s low sales growth reported in the most recent quarter.

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