Wal-Mart Lifts Web Prices to Aid Stores -- WSJ

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (November 13, 2017).

Wal-Mart Stores Inc. wants to charge customers more to buy some products online than in stores, part of the company's efforts to boost profits and drive store traffic as it competes with Amazon.com Inc.

The world's biggest retailer has quietly raised prices for some food and household items sold on its U.S. website, including boxes of Kraft Macaroni & Cheese, Colgate toothbrushes and bags of Purina dog food, according to people familiar with the matter and comparisons between online and in-store prices.

Some big-box retailers charge more for online purchases, including Costco Wholesale Corp., but the move is unusual for Wal-Mart, which has long honed an "everyday low price" message and has worked to keep online prices at least as low as shoppers find in its 4,700 U.S. stores.

Wal-Mart previously aimed to keep online and in-store prices equal for many of its most popular products, unless competition drove them lower. But the company is experimenting with a new system, which has at times resulted in higher web prices for goods that would otherwise be unprofitable to ship, the people familiar with the situation said.

In some cases, product listings on walmart.com show an "online" and "in the store" price. Often the online price matches Amazon.

"We always work to offer the best price online relative to other sites," a Wal-Mart spokeswoman said. "It simply costs less to sell some items in stores. Customers can access those store prices online when they choose to pick up the item in store."

On Friday, a box of Kraft Thick n' Creamy Macaroni & Cheese Dinner was $1.48 on walmart.com, the same as Amazon's price but more than Wal-Mart's $1.28 store price (listed online). A similar comparison for a twin-pack of Betty Crocker Hamburger Helper showed the price as $3.30 online, but $2.50 if purchased at a Wal-Mart store in Illinois.

The higher online prices are part of Wal-Mart's efforts to nudge more customers into stores as well as raise its e-commerce margins by offsetting the cost to ship orders to homes.

A $1.28 box of Kraft Macaroni & Cheese could cost a big retailer around $10 to ship from Chicago to Atlanta, depending on how remote the buyer's address is, according to a cost analysis by consultants Spend Management Experts. A smaller retailer would likely pay about double. A twin pack of Hamburger Helper could cost around $10 to ship between Minneapolis and Atlanta, estimates the firm.

Wal-Mart is investing billions to boost e-commerce sales, which rose 60% in the U.S. in the most recent quarter, but some shareholders worry the effort could drag on profits.

Marc Lore, head of Wal-Mart's U.S. e-commerce unit, told investors in October that "this year should be the largest loss in e-commerce, and we'll see slight improvement next year."

Overall, Wal-Mart expects profit margins to be slightly down this year. Wal-Mart's net income has declined the past two fiscal years, down 7.2% to $13.6 billion in the last fiscal year ended Jan. 31, 2017. The company is scheduled to report third-quarter earnings on Thursday.

Since Wal-Mart's current chief executive, Doug McMillon, took the job in 2014, the retailer shifted its growth strategy from building more cavernous supercenters to improving existing stores and investing in e-commerce. In 2015 it closed more than 150 U.S. stores, and it plans to build just two dozen stores next fiscal year.

Without new stores, Wal-Mart executives say they will boost sales by bringing more shoppers to existing locations and driving online sales. Wal-Mart has raised starting wages for store employees, refurbished stores and bought smaller online retailer startups.

So far, the bet is working. Wal-Mart has increased sales in existing stores for 12 consecutive quarters, boosted by more shoppers coming to stores at a time when many traditional retailers face sluggish sales. Its stock closed at a high Friday at $90.92.

But Amazon continues to grab market share. Amazon is expected to earn 43.5% of U.S. online sales this year, up from 38.1% last year, according to eMarketer, a research firm. Wal-Mart will grow to 3.6%, from 2.8% last year, said the firm.

Wal-Mart e-commerce workers responsible for product sales have been instructed to boost profits along with sales, according to the people familiar with the situation, and are "no longer obligated to follow store pricing," one of them said.

The company is also asking suppliers to sell more of their merchandise in bulk versions -- instead of single boxes -- to increase order sizes and make them more profitable, the people said.

For inexpensive items, "there's no cheaper way to get these products to consumers than have them come in the store and pick it off the shelf themselves," Mr. Lore said at last month's investor conference. He said he hopes shoppers will come to stores for the best price and place larger orders online to offset the cost of shipment.

After scrapping an effort earlier this year to create a membership delivery program to rival Amazon Prime, Wal-Mart offers free two-day shipping on millions of items on any order above $35.

Mr. Lore founded online retailer Jet.com Inc., which Wal-Mart bought last year for $3.3 billion. Since he became head of Wal-Mart's U.S. e-commerce division, the company has become more experimental with online marketing and pricing, including offering more discount codes and working with companies that publicize discounts through mobile applications.

Amazon is also trying new pricing models. It started lowering prices on products sold by outside vendors by as much as 9% in recent weeks, ratcheting up a price war with other retailers ahead of the holidays.

Write to Sarah Nassauer at sarah.nassauer@wsj.com

(END) Dow Jones Newswires

November 13, 2017 02:47 ET (07:47 GMT)