Wal-Mart's classic fallback position still reigns supreme: always low prices

As I've hit upon dozens of times in the last year or so, Wal-Mart has a regular plate of strategies it likes to trumpet out to the world, but it always has a position of relative strength it can fall back on when things don't happen the way they were planned. That strategy -- low prices galore -- always seems to get the media attention in a way that consistently keeps a certain segment of customers engaged with the retailer.

Normally, this includes those customers where price is everything (regardless of quality), but for those that prefer a more enlightened shopping experience, there's always competitor Target Corp. (NYSE: TGT). It counts as a discount retailer as well, although it's primary marketing focus never seems to be "low prices."

For example, Wal-Mart took the retail world by surprise this morning by launching a super-secret holiday shopping sale on a special area of its website. That's right -- instead of waiting until the day after Thanksgiving (Black Friday) to launch incredible deals on several items, the retailer began almost a month early. After seeing the prices on some of these items, they indeed appear to have the lowest price for any comparable product from any retailer. This is one example of Wal-Mart using the tactic that always seems to work for it , and one that built the company as well: low prices.

The cost of over a decade of low prices that have consistently gotten lower

Wal-Mart has built its entire empire based on the perception of low prices for customers above all else. That mantra is key in the retailer's marketing and PR efforts and it shows in every aisle. One of the things that caught me off guard recently was the company's dropping the "happy face" logo that swooped throughout the aisles causing "rollbacks" in prices. The reason this was changed was that the company did not want to be known solely for "low prices" any longer in its mission to recruit a higher-income customer that would purchase larger-margin products.

What goes around, comes around. From my perspective, Wal-Mart really has not succeeded in attracting a growing base of higher-tier customers, probably because its marketing message is still muddled and its image is a little cloudy in the target market it is trying to court. As a result, the company continues to drop back down to compete on price as a primary marketing tactic -- which is probably not what it wanted to do. The tactic works, but it's a tired message to the American consumer and it's not going to grow sales (and profits) at the level many Wal-Mart shareholders are clamoring for after half a decade of a stagnant Wal-Mart stock price.

Wal-Mart is actively engaged in cracking several international markets as well (India and China), but revenue won't build up from those partnership operations in the near term. So, the company is left with the U.S. as its primary growth engine. Volume is where Wal-Mart makes its profit (roughly $11 billion on $344 billion in sales for the last fiscal year), but it's a thin profit margin. $11 billion sounds like a lot, but it's not when you stack it up next to nearly $350 billion in sales.

Many of Wal-Mart's Chinese suppliers are finally crying foul over Wal-Mart's prices

And then, we have Chinese suppliers. In the last decade, more and more of the retailer's sourcing has come from China. With cheap labor costs, a Communist government that controls everything and about every oppressive analogy from the book of human rights, the country is Wal-Mart's leading trading partner and makes a huge bulk of the products found inside every Wal-Mart Supercenter (save the grocery section, though). All those "low prices" that seem to get lower every year are courtesy of the unbelievable low prices many Chinese suppliers sell to Wal-Mart based on the retailer's cost proposals.

Well, enough is enough, apparently. Some of China's largest goods exporters are now stating that they cannot continue the trail of constantly lowering prices to Wal-Mart without fear of having financial hardships themselves. This sounds eerily similar to the response American suppliers had before 2000, when many American vendors began outsourcing production to Chinese factories just to keep prices as low as possible when the local Wal-Mart buyer came around wanting cost cuts and more.

If the actual subcontracting manufacturers from China are now in the same boat, perhaps the lowest rung of the retail price ladder has now been reached. Americans asked for this, as they scooped up low-priced items by the billions and caused a downward spiral that now is not being able to go any lower.

So, if this scenario is true, we're either going to see the lowest point for many Wal-Mart goods soon or prices on many items will actually hold steady and even increase. In a best-case scenario, customers will opt to pay steady or increasing prices at Wal-Mart and the retailer will actually see better profit margins as a result. On the other hand, Wal-Mart's single hand in keeping American economic inflation as low as possible may wither a bit. Which is better?

Have a safe weekend and don't forget to join me right here this time next week for another edition of The Wal-Mart Weekly.