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Is Wal-Mart (WMT) Seeking Price Cuts on Chinese Goods?

Wal-Mart Stores, Inc.WMT is reportedly putting pressure on suppliers to cut prices of goods produced in China in a bid to benefit from the yuan devaluation.

According to sources, the retail giant is in talks with more than 10,000 suppliers worldwide for a 2%-6% reduction in the costs of general Chinese goods such as apparels, shoes, beauty products, and electronics. The company wants its suppliers to share the savings generated from currency headwinds in China to provide its customers with lower prices.

We note that in August, the Chinese government devalued its currency by nearly 2% in a bid to boost domestic growth by making its exports cheaper. However, the move failed to calm investors and markets continued to decline due to a global slowdown.

Wal-Mart is not the only one looking to benefit from the currency devaluation. Companies like Toys R Us and Home Depot HD are also looking at vendors for cost savings. The weaker currency has made China's exports cheaper, especially when purchased with the strong dollar as the yuan is down 2.9% compared to the dollar so far in 2015.

The company expects to use its bargaining power and wide distribution network so that suppliers would agree to its terms. In the past too, the retail giant had asked its vendors to pay to store inventory in its warehouse and to extend the payment period.

The company is looking to increase margins, as it has already pledged to spend $1 billion to raise employees' wages and give them extra training. We note that Wal-Mart had increased its minimum wage to $9 an hour in April, and expects to increase it to $10 per hour in Feb 2016. Higher labor costs along with the company's efforts to overhaul its stores and invest in its online operations have weighed on its earnings.

Bentonville, AR-based Wal-Mart has been posting disappointing results for the past several quarters due to sluggish U.S. sales. Wal-Mart delivered weak results in the second quarter of fiscal 2016 . While earnings lagged the Zacks Consensus Estimate, revenues beat the same. Higher expenses along with lower margins at Wal-Mart U.S. and unfavorable currency impact took a toll on the company's earnings. The company also slashed its fiscal 2016 earnings guidance due to lower-than-expected earnings in the quarter.

Currently, Wal-Mart is gearing up for the holiday season and will leave no stone unturned to attract holiday shoppers with the best deals.

Wal-Mart carries a Zacks Rank #5 (Strong Sell).

Stocks to Consider

Better-ranked companies in the retail sector include The Kroger Co. KR and Ingles Market Inc. IMKTA . Both of them carry a Zacks Rank #2 (Buy).

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WAL-MART STORES (WMT): Free Stock Analysis Report

HOME DEPOT (HD): Free Stock Analysis Report

KROGER CO (KR): Free Stock Analysis Report

INGLES MARKET A (IMKTA): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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