Wal-Mart raising prices on toys, squeezing more out of holidays
Wednesday, December 15, 2010; 12:53 PM
Dec. 15 (Bloomberg) -- Wal-Mart Stores Inc., the world's largest retailer, raised prices on hundreds of toys this month, squeezing more out of sales during the biggest shopping period of the year.
Wal-Mart managers in the U.S. received instructions to mark up an average of 1,800 types of toys per store, according to a company e-mail dated Nov. 30 obtained by Bloomberg News. The e- mail didn't disclose specific increases. The prices were changed "to better enable your store and the company to have a successful financial month," according to the e-mail.
The directive from Wal-Mart, which has about 3,800 U.S. stores, told managers to do the markups as soon as possible. The move may help Chief Executive Officer Mike Duke fulfill his October prediction that sales in U.S. stores open at least a year will be positive this quarter, after six straight drops.
"In previous years Wal-Mart has come out and hammered everyone with unbelievably low toy prices," said Eric Johnson, director of the Center for Digital Strategies at the Tuck School of Business at Dartmouth in Hanover, New Hampshire. "They stepped away from that this year, and after Thanksgiving their prices have crept back up."
The price increases were due to temporary discounts on products, including toys, that ended Nov. 30, Ravi Jariwala, a spokesman for Bentonville, Arkansas-based Wal-Mart, said in an interview. He declined to elaborate on the message's reference to a successful financial month.
"Once a rollback ends, the item returns to its original everyday low price," he said in an e-mail. Today, the retailer announced discounts on toys that begin the night of Dec. 17, with savings such as $5 off Kung Zhu Hamsters and a $9 reduction on the Paper Jamz AC/DC toy guitar.
Wal-Mart dropped 27 cents to $54.18 at 12:30 p.m. in New York Stock Exchange composite trading. The shares had gained 1.9 percent this year before today.
Wal-Mart, the biggest toy seller in the U.S., is vying with Target Corp., Toys "R" Us Inc. and Amazon.com Inc. for sales of playthings, which may advance as much as 3 percent this year, according to market researcher NPD Group Inc. in Port Washington, New York. About 40 percent of annual toy sales occur in November or December, NPD said.
Target has boosted the number of toys in its holiday catalog by 10 percent, though the total number available is the same, according to spokeswoman Tara Schlosser. Toys "R" Us has opened 600 temporary "pop-up" stores this year, up from about 80 last year. Today, analyst Brian Sozzi of Wall Street Strategies in New York cut his rating on Wal-Mart stock from hold to sell, saying the retailer may have lost market share to rivals such as Minneapolis-based Target.
Wal-Mart has nearly doubled the floor space devoted to toys in most stores this year, according to Jariwala. In about 2,000 stores, the area once devoted to garden products has been shifted to a merchandise display called "Toyland," he said. The retailer has also more than quadrupled the pages in its toy brochure.
Still, both Target and Toys "R" Us have taken toy sales from Wal-Mart this season by expanding their inventory and distribution, according to Craig Johnson, president of consultancy Customer Growth Partners in New Canaan, Connecticut.
Wal-Mart has been distracted this year by changes in its management ranks, such as the departure of chief merchant John Fleming and the promotion of Bill Simon to U.S. stores chief, said Customer Growth's Johnson.
Wal-Mart has also suffered from shortages of hot toys like Hasbro Inc.'s N-Strike Stampede Nerf gun, according to Tuck's Johnson.
"Most of their hot toys are out of stock and the stuff that is there is not low-priced," he said in an interview. "Wal-Mart has been a non-player in toys, and Toys "R" Us has made a pretty big play this year."
Industrywide sales at U.S. retailers rose more than forecast in November as holiday shopping got under way. Purchases increased 0.8 percent, following a 1.7 percent gain in October that was larger than previously estimated, according to Commerce Department figures released Dec. 14.
That projection coincides with a rebound in U.S. consumer spending this year as the economy began adding jobs. Consumer spending, which accounts for about 70 percent of the U.S. economy, increased at a 2.8 percent annual rate in the third quarter, the Commerce Department reported last month. That was the fastest since the final three months of 2006.