Discounters lure in school supply buyers

Discounters lure in school supply buyers
Retailers join Wal-Mart in cutting prices to attract more shoppers
By Jon Ortiz - Bee Staff Writer

Published 12:00 am PDT Tuesday, July 24, 2007
Story appeared in MAIN NEWS section, Page A10

http://www.sacbee.com/103/story/288400.html

As Stephanie Toro loaded two dozen spiral binders into a shopping cart
Monday afternoon, her mother marveled at their price.

"Ten cents (each). Unbelievable," Martha Toro said as Stephanie, who
starts ninth grade at Inderkum High School next month, moved on to
shelves groaning with 10-cent report paper portfolios in the center
aisle of the new West Sacramento Wal-Mart. "You can't beat that."

That's the impression Wal-Mart, the world's biggest retailer, and
others want to give consumers as they enter the all-important back-to-
school shopping season: Everything is on sale.

"Almost everyone discounts this time of year," said Bob Gordman,
president of the Gordman Group retail consulting firm in Breckenridge,
Colo. "It's a seasonal strategy."

On Monday, Wal-Mart announced it was cutting prices on 16,000 items in
a bid to jump-start back-to-school shopping. The stakes are high.
Every retailer is scrambling to grab a bigger slice of the $18 billion
Americans will spend now through September on everything from scissors
to sweat socks.

Outside of the winter holiday season, it's the biggest time of the
year for retailers and consumers alike. The back-to-school shopping
season traditionally starts Aug. 1 and accounts for up to one-fifth of
sales for office suppliers, apparel and shoe dealers. Merchants also
watch August and September receipts as they prepare their winter stock
orders.

Specialty chains such as Office Depot seize on the season as well. The
company, based in Delray Beach, Fla., is selling composition books for
25 cents, 5-cent pocket portfolios and two 1-inch vinyl binders for
$1. OfficeMax, headquartered in Naperville, Ill., has buy-one-get-one-
free deals on pencils, markers and highlighters.

Target could not be reached Monday for comment, but its weekly
advertisement promotes back-to-school with Mead 5-star notebooks for
as little as $1.50 each and 10-pack portfolios for $1. It also targets
college students with $24.99 toasters and $7.99 bed sheets.

"Target will respond as a matter of policy" to Wal-Mart's move,
Gordman said. "Especially on highly visible products like Crayola
crayons and Mead theme books. I don't see them discounting their
clothing prices any more, though."

Retailers often sell school supplies below cost to pull shoppers into
their stores, Gordman said. Comparison shopping for clothes, however,
includes more than price, which is why he doubts Wal-Mart's move will
force other apparel merchants to respond much.

"Customers who didn't like Wal-Mart's clothing before won't suddenly
like it now because it's a few pennies less," he said. "So there's not
the same pressure on the competition to match prices."

Office supplier Staples Inc. said it won't follow Wal-Mart's lead,
either. Company spokeswoman Katie Sullivan on Monday said the company
already has low prices on supplies and has rolled out its back-to-
school program. "At this point, we have no intention to change our
current pricing strategy," Sullivan said.

According to a recent survey by the National Retail Federation,
families with school-age children will spend an average of $563 on
back-to-school purchases, up nearly 7 percent from the $527 they spent
a year ago.

Martha and Stephanie Toro on Monday expected to spend about $150 at
Wal-Mart on everything from paper to pants. It was the first of
several school shopping jaunts they planned to make before Inderkum's
academic year starts Aug. 13.

Wal-Mart has returned to highlighting its low prices since late last
year after a focus on trendy clothing and home furnishings failed to
pull in more business. Under its new pricing plan, $1 buys 10 70-page
spiral notebooks, two 40-ounce bottles of Elmer's glue or a 24-pack of
crayons.

For the 12 months ending June 2006, U.S. Wal-Mart stores open at least
one year averaged a meager sales gain of 1 percent, according to
Gordman Group figures. Minneapolis-based Target, Wal-Mart's closest
competitor, posted a 4.6 percent growth in sales during the same
period.

Wal-Mart staged a mini-comeback last month, however, when its same-
store sales gained 2.4 percent over June 2006, a sign that its more
aggressive discount strategy may be resonating with shoppers.

Wal-Mart's discounting move Monday reverberated on Wall Street. Shares
of key rivals such as Target, Sears Holding Corp. and J.C. Penney Co.
were down as investors worried about a price war that could affect
profits. Wal-Mart shares rose 5 cents to close at $48.11.

In a Monday press statement, Bill Simon, executive vice president and
chief operating officer for Wal-Mart's U.S. stores, said the company
would "continue to be more aggressive on pricing."

Whether that makes good business sense in the long run is unclear,
said retail analyst Gordman. The heavy discounting will pressure Wal-
Mart's profit margins and might not pull in customers who wouldn't
shop there anyway.

"Historically speaking," Gordman said, "it's not a good strategy to go
all-discount all the time."

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