Those With the Most (Discounted) Toys Win
The holiday shopping season may not officially launch until Black Friday, but the annual toy price wars have already begun. Wal-Mart (NYS: WMT) has shown its aggressive form of desperation by executing fast and deep price cuts on popular toys.
Bloomberg called it last week, pointing out that Wal-Mart had increased its low-priced toy lead over rivals Target (NYS: TGT) , Amazon.com (NAS: AMZN) , and Sears Holdings (NAS: SHLD) and its Kmart unit a week before Black Friday. In fact, the data collected showed that some of the hottest toys priced nearly 5% higher at Target and Amazon than Wal-Mart.
This isn't entirely a win for Wal-Mart, of course, especially if customers only take advantage of the dirt cheap deals and resist filling their carts with other, more profitable merchandise. Deep discounts result in shrinking margins and lower profitability, although they can juice sales volume. However, as long as Wal-Mart's taking the shot with aggressive price cuts, that means its rivals have a lot to lose. Toys are a major holiday gift; Discover's 2011 Annual Holiday Shopping Survey showed that 50% of respondents planned to give toys as gifts.
Meanwhile, given the high-profile, mainstream return of layaway this year, Target's already indicated that its toy sales have suffered as a result of Wal-Mart's layaway program. If Target's having issues, well I really pity Sears and Kmart (and Sears Holdings shareholders). In other words, these retail rivals will likely lose traction trying to woo customers when Wal-Mart's got a couple major lures like layaway plans and way low prices.
Wal-Mart's deeply discounted toys don't necessarily make it a shoo-in as a retail winner this holiday season. However, here's one winner we can call right now: consumers. Price wars provide them with a heck of a lot more bang for the buck -- and more toys under the tree.
As much of a frenzy as Black Friday will be, there is an even bigger frenzy going on as companies try to revolutionize how consumers spend, and investors stand to make more money than the retailers raking it in this Friday. You can read about it in The Motley Fool's new special FREE report: Your credit card may soon be worthless. Here's why.... Click here to access it now.
At the time this article was published Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool owns shares of Wal-Mart Stores. Motley Fool newsletter services have recommended buying shares of Wal-Mart Stores and Amazon.com. Motley Fool newsletter services have recommended creating a diagonal call position in Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.