Wal-Mart Looms as the Store That Stole Christmas

With another tough holiday season looming, Wal-Mart Stores Inc. is ratcheting up a price war that could be good for shoppers but has competitors fearing the worst.

The world's largest retailer has for years snatched sales from department stores, discounters, supermarket chains, electronics sellers and small mom-and-pop shops. Its intensive discounting helped drive chains such as Circuit City and Mervyns out of business over the last year.

Now Wal-Mart is using its enormous clout and power to undercut its rivals on prices to wrest the advantage during what is expected to be another weak Christmas shopping season.

The chain is slashing prices on toys, books and other holiday items. The latest sale items include a $20 Thanksgiving dinner for eight, an HP notebook computer for $298 (normally $448) and a Sharp 52-inch flat-panel television for $898 (normally $1,548).

"They put a stake in the ground and said we will not be beat this holiday season," said Joe Feldman, a senior retail analyst at Telsey Advisory Group. "Without question, everyone has to look out for Wal-Mart."

The retailer's sheer size means that anything it does has a greater impact, said Todd Slater, an analyst at Lazard Capital Markets. "Wal-Mart's pricing strategy will allow consumers to save millions while at the same time keep pressure on its competitors."

Wal-Mart's competitors say they are girding for battle and promise that they, too, will be discounting left and right.

Toys "R'' Us Inc. has opened hundreds of pop-up holiday toy shops nationwide and will offer "exceptional values and deals every day throughout the holiday season," according to a company spokeswoman.

Kmart, which introduced an online layaway program in October, announced its own holiday price cuts this week and said it would offer "Better than Black Friday" deals every Friday until the day after Thanksgiving.

"We're certainly ready to compete," said Chris Brathwaite, a spokesman for parent company Sears Holdings Corp., which also operates the Sears department store chain.

Target Corp., too, is quickly dropping prices on similar items to match the retailing behemoth's moves.

"Wal-Mart is a formidable competitor," said Michael Francis, Target's chief marketing officer. "They outdistance us by any measure in terms of size and revenues."

In 2008, Wal-Mart's $400 billion in annual sales dwarfed Target's $62.9 billion.

Analysts say no one can discount like Wal-Mart can. With its size, clout and expansive supply chain -- which allows it to offer millions of cutthroat prices throughout the year -- the retail giant will be tough to beat.

"If J.C. Penney will go into the back-to-school season at $14.99 (for jeans), they'll say, 'We have to be at $13.99,' " said Wayne Hood, a retail analyst at BMO Capital Markets. "Because they buy enough, they can do that."

For the holidays, Wal-Mart is becoming even more aggressive and strategic, promising new price cuts every week until Christmas. The deals are not just in traditional holiday categories, but also in groceries and other nondiscretionary items.

"Last year, shoppers migrated to us because they were seeking value," said Gary Severson, senior vice president of entertainment for Wal-Mart's U.S. division. "I don't see this year being dramatically different."

The Bentonville, Ark., chain has been one of the few strong retail performers during the recession. In the 2008 holiday season, the worst for retailers in four decades, Wal-Mart posted a modest increase: Sales for its fourth quarter were $108 billion, a 1.7 percent increase from $106.2 billion a year earlier.

Frugal consumers are lured into Wal-Mart's massive, one-stop-shopping stores. Wal-Mart has also made strides in appealing to higher-income shoppers by sprucing up its stores, shortening checkout line waits and improving merchandise selection.

"The price was always there, but the store experience wasn't desirable, the style wasn't desirable, the quality wasn't as desirable," Hood said. "And they've made significant headway in improving those variables."

Because it's "generally a losing game" to try to beat Wal-Mart on price, the best bet for competitors is to differentiate as much as possible from the retail giant, said Feldman.

Or as a spokesman at a major department store chain said: "We all want to win. None of us wants to lay down and let Wal-Mart have Christmas."