Wal-Mart’s (WMT) claim to fame is centered on its status as a rock bottom retailer, providing the lowest prices for consumers across America. However, some notable competitors are publicly lashing out at the company for what they believe to be misleading and unethical advertising that has taken place over the past year. In at least two states, Michigan and Florida, attorneys-general have been contacted by competitors imploring them to investigate whether or not Wal-Mart’s low price claims are valid. After two years of declining sales, Wal-Mart began running an advertising campaign during the spring of last year reemphasizing the low prices it can offer consumers. By being able to identify competitors’ prices and turn them into advertisements in short order, the company was essentially able to differentiate itself from the competition in real time. It claims that sales were up 1.2% in the regions where the ads ran over regions where the ads were not aired. After being publicly admonished for charging higher prices, it is not surprising that competitors would be frustrated with Wal-Mart’s tactics. However, taking matters to state consumer protection agencies is a step not often seen in retail. Best Buy (BBY), for example, claims that because of its price match guarantee it was forced to lower prices on certain items despite Wal-Mart not having sufficient stock of these items in their stores. Best Buy claims this cost them company millions of dollars in sales over the holiday period. Additionally, they believe that Wal-Mart was not comparing like products in many of their advertisements, claiming to offer lower prices for entirely different, and in many cases inferior, products. Wal-Mart defended its ad campaign on Thursday however, with a spokesman saying, “We are confident on the legal, ethical and methodological standards associated with our price comparison advertisements.” What does this mean for Wal-Mart and other companies in the field? This is not the first time the brand finds itself in hot water over this type of price comparison advertising, as Target (TGT) accused them of similar behavior in the 1990s. Wal-Mart ultimately changed some of their ads after that claim.
Share prices are trading near all-time highs, and significantly higher than years past. If Wal-Mart is not able to maintain its status as a rock bottom retailer it could certainly hurt their growth. This investigation into Wal-Mart’s advertising claims is one that shareholders should keep on their radar.By Kapitall’s Dan Connelly