* Says to cut holiday season prices, lead in entertainment
* To introduce new U.S. formats, put money in remodels
* Company declines to provide update on same-store sales
* Shares close down 2.1 pct at $50.63, Amazon down 1.6 pct
(Adds Fleming comments, comments on sourcing)
By Nicole Maestri
SAN FRANCISCO, Oct 21 Wal-Mart Stores Inc
(WMT.N) will slash prices each week this holiday season as the
discount retailer fights off rivals and strives to keep its
newly won market share this holiday shopping season.
Shares in the world's largest retailer fell more than 2
percent after it pledged "hundreds of millions of dollars in
price reductions" and raised investor concerns over its ability
to protect margins.
The aggressive strategy, announced at its analyst meeting
on Wednesday, pressured shares of rivals including grocery
stores like Safeway Inc SWY.N, discount retailers like Dollar
Tree (DLTR.O) and Family Dollar Stores Inc FDO.N, and online
leaders like Amazon.com (AMZN.O).
"I am competitive by nature and I want to win," said CEO
Mike Duke in his opening remarks. "There is no doubt in my mind
that Wal-Mart will continue to win in retailing all around the
Safeway shed 4.1 percent, Amazon declined 1.6 percent and
Dollar Tree fell 3.4 percent.
Joseph Feldman, a retail analyst with Telsey Advisory
Group, said worries over Wal-Mart's gross margin were likely
pressuring its shares.
"Some people have been a little frustrated," he said.
"You're the leader, but at what cost?"
He also said there was some disappointment that Wal-Mart
did not comment on its U.S. same-store sales, or sales at
stores open at least a year. Earlier this year, it stopped
reporting those numbers on a monthly basis.
PRICES CUT ON TOYS, BOOKS, MORE
Wal-Mart has already rolled out aggressive price cuts ahead
of the 2009 holiday season. It is offering more than 100 toys
for $10 each, and it has cut prices on highly anticipated
hardcover books by 60 percent or more, igniting a price-cutting
Upping the ante, it now plans to introduce new price cuts
weekly this Christmas season, kicking off the program on
Wednesday by reducing prices on lean ground beef, bananas and
certain board games.
"This is going to be a difficult holiday for people. Their
wallets are challenged," said John Fleming, chief merchandising
officer for the company's Walmart U.S. business.
While Fleming said the holiday will be "tough," he said he
liked Wal-Mart's chances and the retailer will be the price
leader in entertainment products this holiday.
Wal-Mart also gave an update on efforts to boost sales by
slowing U.S. store openings in favor of remodeling locations
under its "Project Impact" initiative. It is widening aisles,
clearing its shelves of slow-selling merchandise and stocking
more brand name or exclusive items, like a clothing line by
pop-rock singer Miley Cyrus.
Eduardo Castro-Wright, who oversees Wal-Mart's U.S.
operations, said sales in "Project Impact" stores are outpacing
those of a control group, although gross margins are flat.
Executives attributed that flat performance to disruptions
as customers become familiar with the new format and as it
marks down prices on items it no longer plans to sell. Gross
margins should improve, it said, as customers in those stores
buy higher-margin products, like clothes or home goods.
Castro-Wright also said Wal-Mart is retaining new customers
who are shopping more frequently and across the entire store.
Wal-Mart has seen an increase in higher-income shoppers
coming to its stores during the recession. Wal-Mart said that
in February, 17 percent of traffic growth in its U.S. stores
came from new households and the majority of those households
had annual income of more than $50,000.
ROOM TO GROW AT HOME AND OVERSEAS
Duke kicked off the two-day analysts' event that ends on
Thursday by telling Wall Street that the world's largest
retailer has room to grow, both at home and internationally.
Duke said the company's expenses should grow less than
sales. He said that Wal-Mart will lower its expense structure
by driving more productivity and efficiency.
In the United States, Wal-Mart will put more money toward
remodeling existing locations and it plans to concentrate on
opening smaller stores in new markets. It is working to make
its store operations and systems more efficient, so it can use
the resulting cost savings to lower prices and widen the price
gap between itself and competitors.
Wal-Mart is taking its focus on efficiency worldwide. It
has opened global merchandising centers that are studying ways
to cut the cost of making and selling its proprietary and
private label merchandise, such as its Great Value food brand.
Internationally, it will grow through acquisitions and by
expanding existing operations. While Wal-Mart has expressed
interest in entering Russia, it said that at this point, it
makes sense to continue to study the market.
Last week, French retailer Carrefour (CARR.PA) said it was
pulling out of Russia only four months after gaining a foothold
there. Carrefour said it saw little growth and acquisition
prospects in Russia -- where it previously aimed to be the
third biggest player in the long term. [ID:nLF662106]
(Writing by Jessica Wohl in Chicago; editing by Gary Hill,
Leslie Gevirtz and Andre Grenon)