Discount chains see price cuts as key to post-recession growth

Consumer spending is boosting the outlook for the nation s retailers, but some major discounters still are lowering prices to attract bargain-hungry shoppers.

Retail giant Wal-Mart Stores Inc. said last week that it was cutting prices on more than 10,000 items, while Kmart has been permanently reducing prices on such merchandise as women s layering shirts and children s T-shirts.

Promotions and things that drive traffic are still critically important, said Mark Snyder, chief marketing officer at Kmart. I don't think we re out of the woods.

The retailers said that despite recent signs of strength in the industry, including a sharp sales increase in March among major chain stores, their customers continue to be strained by economic worries. Although merchants are moving away from the drastic price reductions that were necessary during the recession, they still are trying to entice shoppers with low prices.

At Wal-Mart, rollbacks on products such as Tide laundry detergent, Kraft macaroni and cheese and Bounty paper towels have hit shelves, with more reductions to come, spokeswoman Linda Blakley said.

We know that times are still tough, she said. People rely on us for the best prices, and we know that, so we're taking another look across the store to see where we can do even better.

She added that the special prices would last about 90 days, with a range of discount amounts.

Some analysts questioned whether Wal-Mart s new rollbacks were any better than the retailer s usual prices and promotions. Because of Wal-Mart s size, it has long been able to pressure vendors to work with it to undercut competitors on price.

It was somewhat difficult for us to discern what was a new rollback versus what was already on sale and simply received updated signage, JPMorgan analyst Charles Grom wrote in a note to investors. For example, while Wal-Mart had already carried DVDs for $5, the new rollback was entitled was $7.50, now $5.

Gilford Securities analyst Bernard Sosnick said the price cuts were a smart and predetermined measure.

Consumers will respond to Wal-Mart s rollbacks, he said. They most always do.

In its most recent quarter, Wal-Mart reported a 22 percent increase in profit but said sales at U.S. stores open at least a year, considered an important measure of retail health because it excludes the effect of store openings and closings, missed expectations by falling 1.6 percent, excluding fuel. The retailer also said it expected a challenging start to the year for its U.S. business.

Kmart fared slightly better in its last quarter, reporting that sales at stores open at least a year increased 1.7 percent.