Americans will spend money despite the hesitant economic recovery as long as they believe they are buying at the lowest prices, according to Wal-Mart Stores Inc., the U.S.-based multinational retailer.
The department store chain discovered the nation-wide habit by guaranteeing the lowest prices in the market throughout this year’s holiday season. Last year’s fourth quarter was mobbed by shoppers, drawn by Wal-Mart’s bargains, helping the business achieve its first traffic increase since 2009. Still, Wal-Marts limitations were hit.
“Core customers remain cautious about their finances,” said Mike Duke, president and chief executive of the chain. Despite the downsides to the strategy, he added “You can expect us to invest even more in lower prices.”
The new consumer trait will likely have widespread effects, as a diverse range of companies struggle to adjust their prices without cutting too much into their profits. Wal-Mart is a prime example, as it attracts around 10% of the U.S.’s nonautomotive spending.
During last year’s fourth quarter, net sales increased to $122.28 billion, though analysts had predicted revenue of $123.9 billion. The sales included membership fees from Wal-Mart’s Sam’s Club as well.
Brian Sozzi, analyst at NBG, said: “They’re (Wal-Mart) working extremely hard just to see improving sales. But it’s coming at the expense of profits on each sale. Just imagine if they weren’t doing this.”
Still, Charles Holley, Wal-Mart’s chief financial officer, said January’s performance was significantly improved. Sales are expected to gain momentum throughout the quarter.
“I do think there’s a new normal with customers,” he said. “The markets are more volatile. Gas prices are more volatile. Customers are looking for new ways to save money because they don’t know around the corner.”
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