Wal-Mart Stores CEO Doug McMillon recently said the retailer would ramp up its price rollback strategy a quarter or two earlier than planned. In the process, the retailer also abandoned its competitor price matching policy, then used in about 800 stores. And more recently, Walmart U.S. CEO Greg Foran said price reductions will continue.
“We spend a lot of time looking at the role of national brands, role of private label and overlay the everyday low price strategy into our rollback strategy,” Foran told reporters during the retailer’s media call on Aug. 18. “Price is not something that happens immediately, it’s a gradual approach.”
When asked to explain the rationale behind a price rollback, Foran said if it’s done right the first thing he expects to happen is top line sales decrease.
“When the price is lowered on a can of soup, sales go down because of the price investment. We also bet you will tell family and friends and then we will gradually sell more units. We are focusing on what is happening with unit sales,” he added.
While the everyday low price is part of Walmart’s DNA, price rollbacks have become necessary in an increasingly discounted market. Analysts attribute this to consumers who became cost-conscious during the Great Recession and though many can afford to pay more, most consumers would rather not.
Some analysts argue that price rollbacks are temporary in nature and somewhat redundant from a retailer that claims to have an everyday low price strategy – requiring bottom line pricing from suppliers in the process. Carol Spieckerman, CEO of Spieckerman Retail, believes price rollbacks work in a discount-minded retail landscape.
“Walmart and other retailers have better data these days. As such, they are able to be more strategic about which items are discounted and which items will bounce back to regular price more easily. Walmart has an advantage in that its discounts are ‘branded’ as rollbacks, making it easy for its customers to understand and act upon. Walmart shoppers know that rollbacks are temporary which drives urgency while mitigating any expectations for long-term discounts,” Spieckerman said.
DOLLAR GENERAL PRICE MOVES
Walmart competitor Dollar General is also known for low prices and recently vowed to reduce prices by an average of 10% on about 450 popular items in 2,200 of its stores. Like Walmart, the price rollback strategy is geared toward competitive markets where the retailer is losing market share to one another and other discounters. Dollar General CEO Todd Vasos told analysts on Aug. 26th the price reductions would focus on consumable categories. He said the aggressive price strategy is aimed at increasing market share by growing item units and store traffic.
“We believe that these price reductions are meaningful and recognizable to our consumers. We are committed to further price moves as appropriate over time. We are being strategic as we look to proactively address our pricing actions across our store base. These targeted price investments are in high household penetration, fast turning categories. At the same time, we are investing to communicating these price breaks to our consumers through incremental store signage, ad circulars, digital coupons, email and digital media,” Vasos said.
He pledged to monitor the pricing actions and assess the opportunity for ongoing preemptive moves in line with competitive positioning. Dollar General management said its core customers are constantly trying to stretch their budgets as many of its loyal shoppers skew toward the lower income households, according to Nielsen data.
Vasos said Dollar General has been testing price reductions for some time in a subset of stores on items that drive additional traffic into stores. He said while low prices are important, the chain must also give consumers value items needed in their households.
“What we see by these items, it helps round out that basket with the non-consumables once she gets in the store and we get her to pick up the consumables, that basket rounds up pretty nicely because of our compelling non-consumable offering,” he added.
Analysts have asked Dollar General about the low price competitor Walmart and its efforts to reduce prices in lieu of price matching and if the low price wars are worth the trouble. Many of the items on price rollback are lower margin consumables. Vasos said the retail landscape has become aggressive and Dollar General competes with many discounter retailers. He said Dollar General is taking a proactive step and is not following in anyone’s footsteps. He admitted there are risks to taking price reductions, but said his company has the wherewithal to do it.
Foran said Walmart’s price rollbacks are designed to help its customers add to their baskets, but there is also the hope that lower prices might attract new customers to the retail chain. He said it takes time for price reductions to gain traction with customers.