More tough talk on pricing

Walmart has pegged its success in the United States on widening the price gap with competitors to fulfill its everyday low price value proposition, and again this week senior leaders in the stores division vowed to win on price.

It’s not a new claim, but what was different at this year’s analysts’ meeting is Walmart put some teeth into that promise. The company vowed to reduce selling, general and administrative (SGA) costs as a percent of sales by 100 basis points over the next five years, continuing the trend of the past few years which has seen SGA decline by 50 basis points.

“We are going to be more productive and invest in price,” said Walmart U.S. president and CEO Bill Simon. “We believe the momentum will build momentum.”

Part of that momentum could come from the company’s suppliers who Simon acknowledged had been forced to go elsewhere in recent years to build their sales volumes after Walmart reduced assortments. A renewed emphasis on collaboration and joint business planning processes may result in increased support from suppliers and reductions in the cost of goods. Walmart isn’t banking on favorable trends in those areas, though as Simon noted the ability to reduce expenses, lower prices, widen the competitive gap and accelerate sales growth is within its control.

“We are not going to be beat. That’s not who we are,” Simon said.

His confidence stems from the fact that a plan put in place last summer following a senior leadership transition has begun yielding results as Walmart has re-engaged with shoppers who didn’t abandon the company, but did shop less frequently and bought fewer items. However, trends around traffic and ticket are now heading in the right direction, with U.S. comps during July, August and September in positive territory and the outlook for the holidays promising.

“We have a plan that we are very confident in because we can see it working,” Simon said. “Productivity improvements are driving price reductions and we are going to be expanding on it next year.”

The lower prices Walmart vows to offer are dependant on the expense reductions, which is why Walmart drew a line in the sand this year with its commitment to reduce SGA by 100 basis points. Analysts aren’t impressed by claims of pricing superiority, especially when many conduct their own pricing surveys, but with a defined expense reduction target Walmart will be better able to drive the type of meaningful price reductions that shoppers will be able to identify as lower than competitors and Walmart won’t have to sacrifice margin in the process.