Wal-Mart Germany GmbH, the German unit of the world's largest retailer, cut prices by as much as 20 percent on more than 100 items, sending its rivals' shares plunging amid concern about a price war.
Wal-Mart, with 95 German stores, reduced the price of products ranging from AEG vacuum cleaners--down to $129 from $155--to packs of five pairs of socks, to $4.13 from $5.18. It said further reductions are on the way.
Rival retailers stock fell on concern they will have to match Wal-Mart's markdowns. "This is like a declaration of war," said Hubertus Pellengahr, spokesman for the HDE association of German retailers. "This could mean a new round of cuts."
Wal-Mart's international stores generated fiscal third-quarter sales of $5.9 billion, or 15 percent of the $40.4 billion in total revenue. The company operates more than 2,485 of its namesake stores and 456 Sam's Club wholesale warehouses in the United States, and about 1,000 stores outside the United States.
Wal-Mart's price-cutting strategy already has damaged rivals in Britain, where it bought Asda Group PLC, the third-largest chain, in June. Asda has pledged to cut prices on as many as 10,000 products by the end of this year, prompting competitors such as J Sainsbury PLC to make their own reductions.
The markdowns help Wal-Mart attract shoppers, who may pick up more goods while in the store. The U.S. retailer's inventory and distribution systems let it replenish shelves as products are needed, and its large size helps to squeeze better terms from suppliers, spread out costs and absorb the effect of price cuts.
Wal-Mart Germany said it will trim prices on products ranging from food to baby clothing on a weekly and monthly basis. "We will continue to offer these savings--just the way we do it in the U.S. and in other countries--while we continue to improve our operations and increase our efficiency," Wal-Mart Germany President Ron Tiarks said in a statement.
Wal-Mart, based in Bentonville, Ark., has said it will reduce prices by a total of $10 billion in its fiscal year ending this month, surpassing the $6 billion in price cuts the previous year.
For Wal-Mart, "the most important thing is to improve the sales per square foot," said analyst Ulysses Yannas at Buckman, Buckman & Reid in New York.
Wal-Mart entered Germany in 1997 when it bought the 21-store Wertkauf chain, and immediately cut prices on 1,000 products. It expanded with the purchase of 74 stores from Spar Handels at the end of 1998.
Germany's appeal to Wal-Mart lies in the country's relatively free-spending residents. German consumers spent $273 billion in the third quarter. That's an average of $3,329, or 17 percent more than the average French counterpart.