Wal-Mart in price-cutting mode

No. 1 discounter, battling gas price pressures and housing softness; cuts prices on 16,000 products ahead of back-to-school season.

By Parija B. Kavilanz, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- As Wal-Mart continues to struggle with soft sales amid a housing slowdown and gas price pressures, the retailer announced Monday that it will cut prices further on 16,000 items this week to spur sales for the back-to-school shopping season.

Wal-Mart (Charts, Fortune 500), the world's largest retailer, said in a statement that it hopes to save families with children 10 to 50 percent on school-related merchandise through its new discounts.

Wal-Mart said its plans are based on this year's report from the National Retail Federation, which says families on average will spend $563.49 on school-related purchases for their kids.

Wal-Mart spokeswoman Melissa O'Brien told CNNMoney.com via email that this year's back-to-school discounts "are wider than last [year's] and very focused on name brands popular for back to school."

Further, O'Brien said the price cuts on the 16,000 items exceeds the discounts it set on 10,000 items just before the 2006 holiday shopping period.

"We know it's tough right now and Americans are looking to us to provide the best value, and we will," Bill Simon, Wal-Mart's chief operating officer, said in a statement.

Sales of Wal-Mart stores open at least a year, a key measure of retail performance known as same-store sales, continue to trail same-store sales growth at its main competitor Target (Charts, Fortune 500), the No. 2 discounter.

Although Target is in the same discount category as Wal-Mart, its sales haven't been hit as hard as Wal-Mart's in recent months because Target appeals to slightly higher-income shoppers whose disposable incomes are less affected by gas price swings.

However, Wal-Mart surprised its detractors last month with better-than-expected June same-store sales, helped by strong demand for its expanded array of name-brand electronics, including the newly launched Dell computers and other flat panel televisions.

No doubt, Wal-Mart is eager to keep fueling last month's sales momentum heading into the important back-to-school sales season, which typically the second most-important selling season after the fourth-quarter holiday period.

"Some of this is publicity on Wal-Mart's part," Richard Hastings, chief retail analyst with Bernard Sands. "One the other hand, the lower one-third of consumers are experiencing less buying power because of higher gas prices, paying more for healthcare and childcare. Wal-Mart smells blood and it is responding to their diminishing purchasing power."

"Wal-Mart is definitely getting more aggressive on pricing. It's hitting hard on prices to drive traffic to drive its sales," said another analyst who did not want to be named.

At the same time, Hastings said it's getting harder for Wal-Mart to be price competitive. "Prices are falling everywhere in the mass market so it has to try even harder to keep its lower price leadership position."

As part of the new price rollbacks, Wal-Mart said it offer customers 4 wide ruled notebooks for $1, $2 for a 10-pack of No.#2 pencils, 2-pack erasers and 10-pack Bic pens, a Texas Instrument or Casio scientific calculator for $10 and a week's worth of school clothes for $50.

The retailer said in a statement it will change prices on a weekly basis, "depending on the seasonal need," and the top brands that customers want. Top of page