FIGHTING WAL-MART
More than toy soliders in this brutal fight
• Having seen several top stores like FAO Schwarz and KB Toys fail to keep up with leader Wal-Mart, toymakers themselves want to stand their ground in this price war.
Anne D'Innocenzio
The Associated Press
February 25, 2004
NEW YORK -- Led by Wal-Mart Stores Inc., discount retailers won a war with other toy stores this past holiday season. Now toymakers, a casualty in that bitter fight, have decided to make their own stand.
To protect themselves and toy retailers they see as key to their profits, some manufacturers plan to deliver fewer hot toys to Wal-Mart and to have more exclusive launches at chains like Toys "R" Us Inc. It's a rare instance of manufacturers challenging the biggest U.S. retail juggernaut and its low-price approach to business.
Wild Planet Toys' Aquapets, an interactive critter, will be at Toys "R" Us exclusively for three months this spring before it reaches the mass merchants.
"The success of Toys 'R' Us is important for the health of the toy industry," said Danny Grossman, founder and CEO of Wild Planet.
Said Jim Silver, publisher of the Toy Book, an industry magazine: "Wal-Mart is a very important part of the toy business, but toymakers don't want its low-pricing strategies to devalue their brands and their business -- and put more toy retailers out of business."
The price wars contributed to the bankruptcies last holiday season of FAO Inc., owner of the famed FAO Schwarz, and KB Toys Inc., which plans to close nearly a third of its stores.
"Whether it is exclusive launches or controlled product shipments, they are going to do whatever they can to keep other retailers healthy," Silver said.
Still, given the clout of Wal-Mart, which has a 21 percent share of the toy market, it remains to be seen whether these strategies will be effective. Many manufacturers-- who wanted to speak anonymously for fear of losing the discounter's business -- said there is only so much they can do. Setting prices with retailers is illegal under antitrust laws.
And Karen Burk, a Wal-Mart spokeswoman, said: "Our focus will continue to be what it has always been, and that is delivering value to our customers, and that will not change."
The pricing issue is expected to be a key concern of manufacturers and retailers at the American International Toy Fair, the industry product expo that officially begins Sunday.
Toy price wars have always been part of the holiday season, but 2003 was even more brutal than expected. In September, Wal-Mart started by dramatically reducing prices on more than a dozen hot toys, six weeks earlier than usual.
The retailer sold Mattel's Hot Wheels T-Wrecks playset for $29.74 instead of the original $49.88, while the price of Play Along's Sing-Along Care Bears fell to $14.99 from $24.99.
Wal-Mart used the toys as a loss leader to woo shoppers to other aisles elsewhere in the store.
Discount rivals including Target Corp. followed, but other stores that could not compete ended up canceling orders and advertisements.
Manufacturers are worried about 2004. "This sets the bar this year," moaned Jay Foreman, CEO of Play Along.
The $20 billion traditional toy industry suffered a 3 percent decline in sales last year, according to analyst estimates. Meanwhile, prices fell 4.3 percent on top of a 9.3 percent decline in 2002, according to the Labor Department.
Some companies like Applause LLC are determined to create a best seller even without discounters' help. The toy company, which limits its distribution to independent stores and specialty chains, is reintroducing Dream Pets, fuzzy animals originally brought to the United States in the 1950s from Japan.
"I believe that phenomenons can happen today without mass merchants," said Bob Solomon, chairman of the Woodland Hills, Calif., company.
Still, those who still want to have a good relationship with Wal-Mart will need to be diplomatic; with $256.03 billion in sales last year, the company has unprecedented power and offers a chance for big sales that manufacturers cannot ignore.
During a recent conference call with investors, Bob Eckert, chairman and CEO of Mattel, said the company is trying to lessen the impact of price wars by building "more value into our products to sell more on content and less on price."
"We expect the business environment will continue to be a challenge with ongoing retail consolidation and cost pressures," he told investors."How long it takes to get through this is anybody's guess."
Not all manufacturers are upset by what happened last year.
LeapFrog Enterprises Inc. believes Wal-Mart's price cutting of some of its educational products helped to establish the chain as a destination for the brand, said Tom Prichard, senior vice president of marketing.
The closings of other toy retailers is something that "was going to happen. Wal-Mart is bringing it to the forefront earlier," Prichard said.
More than toy soliders in this brutal fight
• Having seen several top stores like FAO Schwarz and KB Toys fail to keep up with leader Wal-Mart, toymakers themselves want to stand their ground in this price war.
Anne D'Innocenzio
The Associated Press
February 25, 2004
NEW YORK -- Led by Wal-Mart Stores Inc., discount retailers won a war with other toy stores this past holiday season. Now toymakers, a casualty in that bitter fight, have decided to make their own stand.
To protect themselves and toy retailers they see as key to their profits, some manufacturers plan to deliver fewer hot toys to Wal-Mart and to have more exclusive launches at chains like Toys "R" Us Inc. It's a rare instance of manufacturers challenging the biggest U.S. retail juggernaut and its low-price approach to business.
Wild Planet Toys' Aquapets, an interactive critter, will be at Toys "R" Us exclusively for three months this spring before it reaches the mass merchants.
"The success of Toys 'R' Us is important for the health of the toy industry," said Danny Grossman, founder and CEO of Wild Planet.
Said Jim Silver, publisher of the Toy Book, an industry magazine: "Wal-Mart is a very important part of the toy business, but toymakers don't want its low-pricing strategies to devalue their brands and their business -- and put more toy retailers out of business."
The price wars contributed to the bankruptcies last holiday season of FAO Inc., owner of the famed FAO Schwarz, and KB Toys Inc., which plans to close nearly a third of its stores.
"Whether it is exclusive launches or controlled product shipments, they are going to do whatever they can to keep other retailers healthy," Silver said.
Still, given the clout of Wal-Mart, which has a 21 percent share of the toy market, it remains to be seen whether these strategies will be effective. Many manufacturers-- who wanted to speak anonymously for fear of losing the discounter's business -- said there is only so much they can do. Setting prices with retailers is illegal under antitrust laws.
And Karen Burk, a Wal-Mart spokeswoman, said: "Our focus will continue to be what it has always been, and that is delivering value to our customers, and that will not change."
The pricing issue is expected to be a key concern of manufacturers and retailers at the American International Toy Fair, the industry product expo that officially begins Sunday.
Toy price wars have always been part of the holiday season, but 2003 was even more brutal than expected. In September, Wal-Mart started by dramatically reducing prices on more than a dozen hot toys, six weeks earlier than usual.
The retailer sold Mattel's Hot Wheels T-Wrecks playset for $29.74 instead of the original $49.88, while the price of Play Along's Sing-Along Care Bears fell to $14.99 from $24.99.
Wal-Mart used the toys as a loss leader to woo shoppers to other aisles elsewhere in the store.
Discount rivals including Target Corp. followed, but other stores that could not compete ended up canceling orders and advertisements.
Manufacturers are worried about 2004. "This sets the bar this year," moaned Jay Foreman, CEO of Play Along.
The $20 billion traditional toy industry suffered a 3 percent decline in sales last year, according to analyst estimates. Meanwhile, prices fell 4.3 percent on top of a 9.3 percent decline in 2002, according to the Labor Department.
Some companies like Applause LLC are determined to create a best seller even without discounters' help. The toy company, which limits its distribution to independent stores and specialty chains, is reintroducing Dream Pets, fuzzy animals originally brought to the United States in the 1950s from Japan.
"I believe that phenomenons can happen today without mass merchants," said Bob Solomon, chairman of the Woodland Hills, Calif., company.
Still, those who still want to have a good relationship with Wal-Mart will need to be diplomatic; with $256.03 billion in sales last year, the company has unprecedented power and offers a chance for big sales that manufacturers cannot ignore.
During a recent conference call with investors, Bob Eckert, chairman and CEO of Mattel, said the company is trying to lessen the impact of price wars by building "more value into our products to sell more on content and less on price."
"We expect the business environment will continue to be a challenge with ongoing retail consolidation and cost pressures," he told investors."How long it takes to get through this is anybody's guess."
Not all manufacturers are upset by what happened last year.
LeapFrog Enterprises Inc. believes Wal-Mart's price cutting of some of its educational products helped to establish the chain as a destination for the brand, said Tom Prichard, senior vice president of marketing.
The closings of other toy retailers is something that "was going to happen. Wal-Mart is bringing it to the forefront earlier," Prichard said.
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Re: MERCHANTS FIGHTING WAL-MART
Wed, March 3, 2004 - 8:59 PMLet me get this straight. the manufacturer is complaning because they are not making enough money and are blaming it on their largest customer?????? the only possible reason for this is that walmart is dictating their purchase price to the toymakers and the toymakers are taking whatever pennies are getting thrown at their feet. if the toymakers had any values at all, they would have a pricing structure that was fair to all their customers. let the retailers charge whatever they want to the customers. if walmart decides they want to lose money on a product, the every toysrus should go to every walmart and purchase the entire stock of lost leader items and resell them in their store at an appropriate mark up. obviously they would make more money becuase walmart is selling the product for less than they bought it for.
I like the toymakers thoughts, but I know walmart and they will be the next ones on the bus demanding exclusives for walmart only. if they can dictate their purchase price, then they certainly can dictate what products they will and won't buy. -
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Re: MERCHANTS FIGHTING WAL-MART
Thu, March 4, 2004 - 1:13 PMYou might want to read this article:
www.fastcompany.com/magazine...mart.html
It gives a good idea about Walmart's pricing tactics. -
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Re: MERCHANTS FIGHTING WAL-MART
Mon, March 15, 2004 - 2:19 PMYeah. you can dilute a price so that other retailers/the manufacturer can no longer receive "fair market value."
A local fabric plant shut down when WalMart insisted they lower their prices even more. Since the company couldn't do so without lowering wages, they refused. WalMart pulled the contract. end of business.
That's a slightly different story, though.
But think about the 900-lb gorilla who sleeps wherever he wants--for 50% less. From then on, who's gonna pay full price?
Thanks for nothin', ya big ape.
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Re: MERCHANTS FIGHTING WAL-MART
Wed, May 26, 2004 - 9:43 PMThe problem with Wal Mart is that they engage in predatory pricing.
They've actually been busted for this on at least one occasion.
Predatory pricing is when you sell something for way under cost, typically with the intent to drive your competition out of business. When they're gone, you have a local or even regional monopoly, and you jack up the prices, big time.
The application of this is, Wal Mart can buy toys at some price, sell it at some uber low price, and with Toys R Us and the rest driven out of the area of a given Wal Mart store, the store will then jack up their prices for toys. Rinse and repeat for food, clothes, electronics, music, etc. I'm thinking that Wal Mart is realizing if they can force the manufacturers of various products to sell their product at a lower cost, or just go through a Chinese manufacturer instead, Wal Mart can do that whole predatory pricing thing a lot easier.
In their war to wipe out their competition, they also wipe out domestic production of (name your good here).
This is the darkest side of free market capitalism.....
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Re: MERCHANTS FIGHTING WAL-MART
Fri, August 13, 2004 - 1:08 PM
Re: your statements...
"if the toymakers had any values at all, they would have a pricing structure that was fair to all their customers. let the retailers charge whatever they want to the customers. if walmart decides they want to lose money on a product, the every toysrus should go to every walmart and purchase the entire stock of lost leader items and resell them in their store at an appropriate mark up. obviously they would make more money becuase walmart is selling the product for less than they bought it for."
"I like the toymakers thoughts, but I know walmart and they will be the next ones on the bus demanding exclusives for walmart only. if they can dictate their purchase price, then they certainly can dictate what products they will and won't buy."
walmart already demands plenty of exclusive product lines, across lots of different categories. walmart can and does dictate purchase price...but it is illegal for a manufacturer to sell the same product at a different price to different retailers. what that means is, walmart gets LOTS of exclusive to walmart items because that's how the law is skirted.
walmart has a list of their top selling items that they will not be undersold on, period. if there's a dollar store selling that item for a buck, walmart will be at 97 cents. this is called loss leadership and it's common. other retailers do this too; P&G (laundry detergents) and Campbell's (their top three soups) have been loss leaders for many many chains. can a local store who's being undersold go in and purchase all the product and then resell? technically yes (athough i dunno if it's strictly legal). but, that assumes they're being undersold below invoice cost. like i say, there's a list of products walmart will sell below cost but it's not that long and everything else is above invoice.
further, walmart can and does demand price reductions...regardless of whether it's reasonable or not. this forces companies to look for cheaper and cheaper ways to produce; hence we have children making shoes for 6 cents a day in countries around the world.
i don't know any company who is willing to lose 30-100% of their sales (that's what walmart represents to most manufacturers). that's why no manufacturer will tell walmart to go to hell; they can't afford to lose that much revenue. consumers may be willing to seek out a particular brand sometimes, but not enough of the time to assure companies that they are safe. i don't think walmart needs any company as much as a company needs them.
it's sickening to watch it all happen over and over, and see the schoolyard bully keep winning.
for a really good laugh, go to yahoo's message board for WMT. it's a brilliant display of intelligence and ridiculousness.
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