North of the Border Price War
In an article entitled "Wal-Mart puts heat on rivals by slashing prices", Marina Strauss of Toronto's Globe and Mail links steep and unexpected price cuts by Wal-Mart Canada to the broader battle for supremacy among North of the Border mass merchandisers:
Wal-Mart Canada Corp. has fired an unexpected early salvo in the holiday retail wars by slashing prices -- and inevitably hurting rivals -- while sending a signal that retail sales may be slower than expected in this crucial shopping season. Yesterday it cut prices on a wide range of popular gift items by as much as 50 per cent -- and in a few cases even more. The retailer said Canadians are delaying their holiday shopping, prompting it to act swiftly to stimulate business. ... Competition in the domestic sector has heated up with Wal-Mart aggressively expanding its store base. This fall it opened its first three Supercentres with a full range of products, including fresh foods. "They're going to keep playing hard ball," said one source familiar with Wal-Mart. "We've got into a battle of the superbrands and only the mighty will survive. I think you're just going to see a heightened competitive battlefield. It's not for the squeamish."
Interestingly, rivals are responding in kind rather than attempting to differentiate their way around each other:
Some competing retailers vowed to fight back. Grocer Loblaw Cos. Ltd., which has been quickly expanding into non-foods, was already planning to cut the price of toys by 30 to 50 per cent at its superstores, starting tomorrow, spokesman Geoffrey Wilson said. He said pricing of its Joe Fresh Style apparel line "is extremely well positioned in the marketplace and doing very well. Above all, no matter which of our formats, we are committed to be competitive in the markets in which we compete." Vincent Power, spokesman for Sears Canada Inc., said it regularly looks at what Wal-Mart and other competitors are doing "and we make any adjustments we have to." Best Buy Canada Ltd. has lowered its prices two or three times already on popular items -- particularly flat-screen televisions -- since the summer, said Charles Tobin, vice-president of merchandising. "In consumer electronics retailing, it's always important to make sure we're competitive."
And who is the likely beneficiary of all of the corporate bloodshed? Why the consumer, of course:
"It's going to make life difficult for retailers and for vendors too," said Jim Danahy, managing principal at consultant CustomerLab. "It will pinch everybody. Wal-Mart is just too big not to. But consumers are going to be singing down the aisles."
This last one is a point of forgotten by WalMart">Wal-Mart critics who like to claim that the ultimate cost of low prices is low wages. That is to say, the low prices are being taken out of the hide of some supplier or rank-and-file employee or some other hapless soul in the firm's value-chain. The first-order and most dramatic effect on dropping prices is on profit margins. Unlike wages, which are hard to lower, there is no limits to how far profits can fall. But even if it is the case that wages do decline are remain low when retailers have a bad year, the consumer surplus generated means that people have more money in their pockets to spend elsewhere; they have more money to spend on products and services made by industries whose firms pay higher and growing wages. In other words, consumers use their spending to power to indicate to managers and investors where scarce resources and capabilities can be more profitably redirected.
The North of the Border Price War is, then, a fight to see who will reign supreme in serving the King who is the Customer.