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Walmart's Pricing Success Sought By Other Retailers

During the economic drawback, most retailers had an increased number of sales in an attempt to attract consumers on a cash-strapped budget into their stores. Now, that has set a dangerous precedent. It has caused many consumers to only shop at retailers who have deep discounts noted by signs or clearance stickers. This obviously eats into the retailers' profit margins, as they have to keep offering these discounts to keep the consumers coming through their doors. In fact, retailers' annual profit growth was cut in half between 2006 and last year, according to a survey of 122 merchants by Retail Metrics, a research firm.

In an attempt to return to the pre-recession profit margins, big retailers such as J.C. Penney and Lowe's are trying to gradually get these sale-addicted customers to keep coming to their stores by offering everyday low pricing. Unfortunately, it will take quite a while for consumers to trust that these new "everyday low prices" are the best deal that they can get. In fact, in early 2012, nearly 75% of 1,000 shoppers surveyed by consumer research firm America's Research Group said they it would take discounts of at least 50% in order for them to consider buying a certain product. That number up from 52 percent in 2005.

To help break this pattern of deep discounting, retailers will have to think of ways to attract shoppers that can be just as intoxicating as two-hour sales or coupons. That could mean top-notch service or exclusive merchandise, for instance.

To this end, big retailers like JC Penney and Lowe's are attempting to duplicate the pricing success of Wal-Mart Stores Inc., which was founded 50 years ago on "everyday low" prices. Since Walmart's reputation was built based on these everyday low prices, consumers already have a trust factor that other retailers have yet to establish.

Penney executives say they have considered Wal-Mart's model when they decided to change their pricing strategy. It was part of an attempt to turn around the Plano, Texas-based chain, which has had annual sales declines in four of the past five years.

In February of 2012, Penney got rid of coupons and the almost 600 sales it used to have annually. They have also lowered prices in stores permanently by 40 percent.

But Penney, which has 1,000 stores, has learned that it's not so easy to duplicate Wal-Mart's magic. Customers have not embraced the new pricing: Penney recently reported its second consecutive quarter of big losses due to severe sales drops. And its stock has lost over 40 percent of its value since early February.

Now, Penney is changing its pricing - again - to add back more sales. Among other changes, the company began eliminating last month its month-long sales and instead is increasing its clearance sales to every Friday. Johnson acknowledged that Penney made some mistakes, but he's vowing to stick to the everyday pricing plan.

Penney isn't the only retailer finding that everyday pricing is a tough sale to shoppers. Even merchants who are returning to their roots of offering permanently low prices are finding it tricky.

Like Wal-Mart, Lowe's, the nation's second largest home improvement chain, built its business around "everyday" low pricing. But then the company strayed away from that and started offering more sales when the housing market tanked in 2006. Shortly after, the company's performance began to lag behind its bigger rival Home Depot, which never veered away from its everyday pricing strategy.

Lowe's is still sticking to its everyday price plan, but it's re-evaluating to find the right balance between everyday low prices and temporary promotions.

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