Wal-Mart prices going up

The mega-retailer has been raising prices faster than mainstream grocery stores, losing some of its discount lead.

By Kim Peterson Aug 16, 2010 2:00PM

Wal-Mart logo © WalmartWal-Mart (WMT) has been quietly raising its prices, giving little weight to fears that shoppers may have less spending money if deflation takes hold.

A recent study by JPMorgan Securities found that the mega-retailer has upped prices by nearly 6% over the last six weeks, according to The New York Post.

Analysts studied pricing at a Wal-Mart supercenter in Virginia, and found that a 32-ounce bottle of Windex, for example, saw an increase from $1.97 to $2.97. A 12-ounce box of Quaker Oats saw a 65% increase, and the price of a container of Tide detergent jumped 50%.

Reuters blames the price increase on the rising costs of raw materials and oil. But that's only a small part of the story, since competitors like Safeway (SWY) only raised prices by about 1% in that same period. Kroger (KR) and Whole Foods (WFMI) even cut prices during that time.

What we may be seeing is a new philosophy at Wal-Mart after a changing of the guard. The chief merchant and the leader of the company's U.S. division have stepped down in recent weeks, the Post reports. The new pricing may be a strategy pushed by their replacements.

 

 Post continues after video:

Wal-Mart still beats traditional grocery stores on most prices, one JPMorgan analyst told the Post. But not by as much as before. Its lead has dropped to 10.4% from 16% in June, the analyst said.

There is more attention being paid to retail prices now as debate grows about whether we're headed for inflation or deflation. Food and lower-priced items -- Wal-Mart's specialty -- may be in a pocket of inflation, while deflation is more of a threat for bigger-ticket items like cars and furniture, Reuters reports.

High unemployment and a pullback in shoppers' spending are fanning worries about deflation. "No industry suffers more from deflation than retailers," one economist told Reuters.
So how is Wal-Mart looking as a stock play? One asset manager says the stock has been a dud for years. Wal-Mart shares are cheaper than Target (TGT) or Costco (COST), trading at 13 times earnings and 11.6 times next year's earnings.

"Although the retail giant is the largest in the country and generates more revenue and net income than Target and Costco combined, it has actually been the worst investment over the past 10 years," writes Mark Riddix on Seeking Alpha.

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