Walmart’s Low-Price Strategy Under Pressure


By Matthew Boyle and Bloomberg

via Fortune - August 12, 2019


Walmart Inc. prides itself on rock-bottom prices for everyday goods, but as soda, snack. and toothpaste makers boost what they charge retailers in response to rising costs and looming tariffs, something’s got to give.


The question is where.


Average prices for consumer goods rose 2.3% in the first six months of 2019—the fastest pace in several years, according to data tracker Nielsen. At Walmart, store officials said there was “modest” inflation in the first quarter. However, according to Gordon Haskett Research Advisors, a Walmart shopping trip was 5.2% more expensive in June compared with a year earlier. For thrifty Walmart shoppers, that matters.


Suppliers charging more


Coca-Cola Co., PepsiCo Inc., Procter & Gamble Co., and Kellogg Co. are among those jacking up prices, pressuring Walmart into a decision: The retailer can absorb the price hike and see its profit margins suffer, pass along the increase to shoppers and risk losing sales, or use its clout with suppliers to delay or mitigate the impact.


Walmart won’t comment on its plans, but experts say the retailer will likely employ a blend of all three strategies to cope with inflation.


“Walmart will do everything they can to not pass this on to consumers, but at some point they will have to because there is not enough cost savings to offset the inflation we’re starting to see,” Brian Yarbrough, an analyst at Edward Jones, said in an interview. “Still, they have a lot of leverage over suppliers so I’m sure they’re pushing back.”


Nevertheless, expect more adjustments to come. Starting next month, the next round of 10% tariffs on a broad swath of $300 billion worth of Chinese imports begin. This will inevitably lead to price increases, Walmart executives have said— just as the holiday shopping season gets underway.


How much of those increases will be borne by consumers? “None of us know,” Yarbrough said, “except Walmart’s CFO.”


Inflation squeezing profits ...


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