Wal-Mart's pricing playfulness -- nearing its end?

For as long as I can remember, Wal-Mart has clung to a seemingly well-designed pricing strategy for almost all products in its stores. Ever see a price ending in $.99 on any item in any Wal-Mart store? Regardless of regular discount location or Supercenter status, ending prices like those ending in $.87, $.27 and $.76 seem to be common for the retailer. Rarely does Wal-Mart have "sales" in the traditional retail sense.

Instead, the company uses the branding strength of its "Always Low Prices" corporate sales pitch to draw customers into believing it has the lowest price on all items it sells. This, of course, is not the case -- but the truth does not matter, and "Always Low Prices" does not make a specific marketing claim at all. In fact, Wal-Mart proudly disclaims in stores that it does not honor "gimmicks" like double coupons and competitive price matches from other retailers that are advertising prices using "gimmick prices." Since when is the retail giant able to define the term "gimmick?"

Customers respond to gimmicks

For well over a decadE, Wal-Mart's low-price mantra worked pretty well. It did not have to have "sales" in the traditional sense and it did not have to use draws like double coupons to get customers in the doors -- although its competition did. Times changed I guess. In one specific area -- apparel -- Wal-Mart seems to be getting beaten badly by other chains. It's seen quarterly loss after loss in the apparel product segment 'and combined with recent apparel executive departures and misforecasting, it's hard to see where Wal-Mart is headed with its retail clothing business.

Contrasted to a competitor like Kohl's(NYSE:KSS), Wal-Mart looks like it is standing still. Now, Kohl's is a far cry from a Wal-Mart discount store -- that's easy to see. A Kohl's shopping environment is pleasant, clean (for the most part) and is reminiscent of a semi-luxury department store insofar as the overall shopping experience. Here's the kicker: much of the clothing merchandise in Kohl's is very comparably priced to very similar merchandise in Wal-Mart stores. Except for premium-type items like denim jeans and shoes, much of the entry-level clothing items in Kohl's stores and in Wal-Mart stores are very close in perceived quality and price. The difference: Kohl's uses the time-tested "gimmick" of displaying sale prices on seasonal and normal clothing items, which customers readily respond to from my experience. Wal-Mart? Except for an "Always Low Price" ending in $.87, there are no "gimmicks" to be had.

Changes ahead for Wal-Mart's clothing product lines?

I'm quite sure there is a pretty extensive global pricing team that breaks down per country, per state and even per demographic area that sets these oddball pricing schemes for Wal-Mart. My thinking is that the world's largest retailer wants to give customers the impression of cutting every penny off the price before selling to each customer, and all the oddball prices you'll find on most Wal-Mart products reflects that. Example: would a customer be more apt to buy something with a price ending in $.87 instead of $.99? Sure -- because "Wal-Mart just saved me $.12. That is the pricing mentality Wal-Mart has.

Will this be enough to move forward and increase sales instead of losing them to the competition? Target Corporation(NYSE:TGT)has sales every week on clothes (and everything else) and so do almost every other retail chain I can think of. The perception of a "sale" is what mobilizes the customer's wallet or purse, and it's the hallmark of inventory management and retail selling strategies. Why doesn't Wal-Mart participate outside of certain holiday selling seasons? Maybe it doesn't have to --- it became the world's largest retailer by displaying and providing "Always Low Prices" to consumers, who took notice and bought like crazy from Wal-Mart stores. Is it time to change up that formula?

It's hard to see Wal-Mart move away from the pricing strategy it employs in its U.S. stores for the simple fact in that those strange prices are partially responsible for putting Wal-Mart where it is today. On the other hand, participating in the "Sale Now!" parade with other retailers would put it on parity for comparison purposes and would make Wal-Mart just another retailer selling discount goods. It's differentiator, now, are its prices and propensity not to have "sales." Will that be enough going forward as the competition takes more of its business away? Whip out that crystal ball, please.

See you next week with another edition of The Wal-Mart Weekly. Until then, have a great weekend!