A customer browses products at a Walmart store in Burbank, California
Patrick T. Fallon | Bloomberg | Getty Images
Inflation has pushed up the prices of items from soda to diapers, but Walmart said it has more of its merchandise for sale.
Walmart’s US CEO John Furner said in a earnings call on Tuesday that the retailer had about 30% more discounts in stores in the first quarter than in the same period a year ago. He said it plans to keep dangling deals and widening price differentials to differentiate itself from competitors.
“Over the past 12 months we’ve seen our price differentials improve against the market and our traders are working hard to make sure it stays that way,” he said.
The retail giant has earned a reputation for its slogan and focus on “Everyday Low Prices”. Down the shopping aisle, it promotes sales – called rollbacks – on large-number signs designed to grab shoppers’ attention and tell them how much they can save.
However, during the early months of the pandemic, Walmart and other grocers largely pulled promotions because they struggled to keep stock on the shelves. Rather than pricing stocks to encourage customers to buy multiples, many retailers limited purchases of popular items, from toilet paper to ground beef. Some retailers also lowered their orders for skipped items such as clothing, leading to fewer leftover merchandise ending up on the tidy rack.
Recently, retailers have faced a new challenge: price increases by consumer packaged goods companies such as Coca-Cola and Procter & Gamble as raw material costs rise.
However, Walmart said it is holding the line. For the retailer, frequent sales are more indicative of a return to the norm. It is doubling down on one of its major competitive advantages as more Americans buy new clothing, teeth whitening kits, and other merchandise to get back out into the world.
The retailer exceeded Wall Street’s expectations for first-quarter earnings. Doug McMillon, CEO of Walmart, said Americans “want to get out and shop” as they prepare to socialize and go on vacation.
Furner said undercutting rivals on price is especially important as more shoppers feel comfortable going to different stores to compare and get the best bargain. During the peak of the health crisis, consumers tended to limit their shopping trips, buy many items in one store, and go to a nearby store.
That may change as people worry less about their safety and more about their budget, while juggling again with a growing list of expenses, from commuting to the office to meals in restaurants and hotel stays. This year he said that “value can be more important than convenience.”
He said the size of the store and the mix of merchandise, from clothing to consumer electronics, gives it an advantage. He said it can offset price cuts by selling higher margin items, even within the same category. For example, he said that meat, fruit and vegetables and bakery are generally more profitable than some other grocery items. Selling more of those items “allows us to maintain the price positions we’ve had,” he said.
In addition, he said, Walmart’s new revenue streams, such as its growing advertising business and the third-party market, give more flexibility to lower prices without hurting profits.
Walmart CEO Doug McMillon shared a memorable lesson about the power of low prices early in his career during Tuesday’s earnings call. While working as an assistant food purchaser in the 1990s, he said his boss made a surprising request.
“My supervisor walked into the room with a few of us and said, ‘We are short of our profit number for the month. I need all of you to find price cuts that you can post quickly. Bring them to me towards the end . of the day.’ And I thought I heard him wrong, “he said.” How do you lower prices and increase profits? “
Later, he said, he began to understand “that’s the beauty of retail and mix.”
“We have all these levers to find places to go upstream [and] do things differently than other people do, ”he said.