Same-store sales on track, but ‘price war’ looms
July 24, 2007,
New York – While same-store retail sales were on target in mid-July, the aggressive price cuts just put in place by Wal-Mart may trigger a “price war” that thins margins and cuts profits for itself and others.
Measured on a month-over-month basis, sales through the first two weeks were 0.5% above June levels, in line with the target.
Discounter sales advanced by 2.6% during the second week, building on a 2.5% increase the week before. For the two weeks month to date, discounter sales came in ahead of target, up 2.5% vs. a goal of 2.4% growth.
Acting as a bit of a drag, department store sales have been weaker than expected so far. After rising by 3.2% during the first week, sales softened somewhat, rising at a modestly slower pace of 3.1%. For the first two weeks of July, department store results were well short of plan, with a 3.1% increase compared with a targeted gain of 3.6%.
"Most retailers indicated they were slightly above plan for the week," said Redbook analyst Catlin Levis. "Some department stores are experiencing a lull in activity before back-to-school shopping takes over. The discount stores sector remained slightly above plan and did their best business in consumer staples such as food and household supplies."
Levis observed, "Some retailers suggested moderate interest in the children's department, perhaps evidence of early back-to-school buying."
Striking a cautionary note, Levis said Wal-Mart's recent decision to reduce prices across the board could trigger a “price war” among retailers that could lead to thinner margins and lower profits. Wal-Mart, she said, announced "aggressive price cuts on 16,000 products across all stores with a focus on back-to-school needs as well as a new ad campaign focusing on their price competitiveness, which could begin a margin-reducing price war among retailers."