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Commitment to low prices meets obligation to shareholders

Walmart took prices up in April, and the average gap with competitors narrowed to 16.8% from 17.8% the prior month, according to the most recent monthly survey of prices conducted in the Dallas and Chicago markets by Credit Suisse. The firm also found that Walmart has been among the most aggressive in terms of passing through inflation to customers. During the past three months, Walmart’s prices on the 60 food, health and beauty and household items the firm tracks each month increased 2% during the past three months and over the past year prices have risen by 3.6%.

The firm noted that food inflation at all retailers was up 4.9% in April and was particularly pronounced at Walmart where it was up 6.6%. Walmart’s willingness to raise prices is viewed as rational behavior with the inference that a rational Walmart is good for overall profitability in the retail industry.

Even so, the company has maintained an average overall pricing gap of 16.8% and that figure sounds like it would be substantial enough that it is evident to shoppers. However, the average number gets distorted somewhat by the inclusion of such chain drug operators as Walgreens and CVS. Their prices were substantially higher with Walgreen’s prices on surveyed items 24.6% higher than Walmart’s in Chicago and 32% higher in Dallas. CVS was a little closer with a 17.6% gap in Chicago and 27.6% gap in Dallas.

The inclusion of such substantial differences in the calculation of an overall average obscures the fact that Target is close to pricing parity on the basket of items surveyed by Credit Suisse. In Dallas, Target is 4.6% higher and in Chicago Target is 3.4% higher, but neither figure takes into account Target’s new REDcard Rewards loyalty program, which knocks 5% of the total basket and enables cardholders to pay less for the surveyed item at Target than at Walmart.

Target has long been very competitive with Walmart on prices so that is not a new development. But it is something of an eye-opener to see that Walmart is leading the charge to pass inflation through to shoppers even as it recently launched a new ad campaign trumpeting its low prices, broad assortment and its “save money, live better” value proposition. Isn’t a company that bills itself as an agent for the customers supposed to be leading the change to lower prices or at a minimum be the last to pass through increases in an inflationary environment?

The Credit Suisse survey only reflects pricing activity in two markets, but if the situation in those markets is indicative of what’s going on nationwide Walmart’s new ad campaign appears disingenuous.

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