Wal-Mart's competitive advantage is eroding, threatening its claim to its throne of retailers, analysts warn.
Wal-Mart's low prices allowed it to take over the world, become the largest employer in the United States and drive smaller competitors out of business, according to
The Washington Post.
But the retailer's unchallenged reign as the low-cost king of retail now appears "far from absolute," The Post notes.
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Other retailers, such as Target, are offering prices for the same items that are just as good, if not better, than Wal-Mart's prices are.
Wal-Mart's price premiums relative to its competitors has eroded to a noticeable degree in key markets such as Philadelphia, Atlanta, Houston and Chicago, analyst Scott Mushkin of Wolfe Research asserts in a market note obtained by The Post.
For a product like a bottle of Tide laundry detergent, Mushkin found the price differential has faded.
Wal-Mart's earnings reports are starting to reveal its challenges. For the fourth quarter of 2013, profits were down 21 percent. Executives have taken to blaming factors such as weather, healthcare costs and the reduction in SNAP benefits for the retailer's less-than-stellar performance.
Mushkin tells Bloomberg that he expects for more reports from Wal-Mart where results are "just okay."
Wal-Mart has, to a large degree, lost its competitive advantage on price. Margins have gone up and the pricing advantage has begun to lag. It has lost market share to companies like Kroger. And this has been going away for a while, Mushkin notes.
In addition, Wal-Mart USA is "under enormous pressure to produce numbers," he says. The company is heavily investing in international businesses and regulatory issues.
Moreover, "e-commerce is eating up over a billion dollars," Mushkin explains. Now, the retailer wants to focus on opening up smaller grocery stores, and "we don't think it's the right strategy," he tells Bloomberg.
Wal-Mart's core business is its supercenter business and that's where its focus should be concentrated. According to Mushkin, e-commerce and the new smaller stores will "disenfranchise" its core business.
Brian Yarbrough, a consumer research analyst at Edward Jones, also warns Wal-Mart is facing challenges, including dwindling market share.
But Wal-Mart's competition isn't limited to major grocery retailers, such as Kroger. Consumers are increasingly choosing dollar stores over Wal-Mart, a reality company executives have reportedly admitted.
"Something tells me people are more into convenience right now,"
Yarbrough tells USA Today. "You can get in and out of a dollar store in two to three minutes, about the time it takes to walk from your car into a Wal-Mart."
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