Early Holiday Sales Results Suggest Retailers' Price Cuts Causing Bleeding At Bottom Line

By Paula Rosenblum
Contributor

The final tallies for Holiday Season 2013 are starting to trickle in. Indications are that top and bottom lines took a hit from the promotional bloodbath known as “Black Friday weekend” and the other eight weeks of the season.Walmart has raised a flag, indicating that sales at stores opened at least a year (a key retail metric otherwise known as “comps” or comparable sales) would be down for the quarter at Walmart stores, with flat to 2% gains at Sam’s Club.  It also reduced its earnings outlook. Ever ready to put a positive spin on otherwise awful numbers, one financial analyst actually cheered Walmart’s strategy, stating that the company had “put a large nail in the coffin of both Sears and Toys R Us.”

Somehow I think Sears was self-immolating without Walmart’s assistance.  The company has had a revolving door of CEO’s for the past few years, and current CEO (and majority shareholder) Eddie Lampert actually has another full-time job as a hedge fund manager.  In the meanwhile, Sears thrashes. Ironically, the company has done some good things on-line with its “shop your way” initiative and up-to-date web site.  But its stores are sorely in need of make-overs (the 80’s may have called Radio Shack, but the 70’s are dialing Sears) and of new and interesting products to fill them up.

Toys R Us is in a difficult retail segment, what retailers call ‘category killers.’ (Note to readers: These chains sell a broad assortment of a particular category of merchandise.  So Toys R Us sells all things toys.  Party City sells everything you need for a party. Other category killers include Bed, Bath and Beyond,Petsmart PETM +0.57% and Barnes and Noble NE +0.46%. The pet supply industry is doing well.  The others, not so much.)

While Toys R Us comps declined slightly more than Walmart’s, their results are actually comparable.  In other words, if this was victory, it was a hollow one.

Even Amazon.com AMZN +1.78%, America’s favorite retailer, is showing signs of hitting the pricing floor.  Recent reports have the company considering raising the price of its Prime offering (free two-day shipping on many items along with free streaming videos), by $40 to help improve earnings, and the default shipping selection when ordering “Prime” merchandise has shifted from 2-day to 3-day delivery.  The customer can still change the selection to “free 2-day shipping” but it takes an extra keystroke and a sharp eye to do it.

Speaking of the two behemoths, Walmart’s new CEO, Doug McMillion is making plans to leverage its vast store base to go after Amazon’s business.  It’s going to offer more buy-on-line pick up in store options, and fulfill some on-line orders through local stores to speed delivery. There’s a serious amount of money at stake.  After all, on-line still only represents slightly more than 10% of all retail sales.

Personally, I don’t see Walmart.com as a huge threat to Amazon.  I don’t believe the customer demographics are the same, and it’s unlikely price differences will be large enough to make customers switch their allegiance.  If anything, I believe it’s more about preventing Walmart’s customers from defecting to Amazon.com as they go on-line. Still, it would be something else again to witness these two companies engaging in a price war.  Devastating to both, but interesting to watch from the sidelines.

These are the early returns.  Overall, so far it was a better season for shoppers than it was for retailers.  I’ll be noting additional results as they come