Attention Grocers: Zag Where Wal-Mart Zigs

Attention grocers: If Wal-Mart opens a store near yours, don't try to copy it by lowering your prices. It won't help, and it may hurt, according to a new study.

Having Wal-Mart as a new neighbor means that—no surprise—grocers and other competing retailers will likely take a sales hit. But if retailers try to compete on price, or try to mimic Wal-Mart's product mix, they'll take a worse sales hit.

On average, neighboring grocers' sales decline by 17 percent when a new Wal-Mart opens, according the study published by the Tuck School of Business at Dartmouth College. But when grocers lower their prices in response, or reduce their product assortment, sales can drop by 25 percent or even more.

Grocers, in fact, should try to be the opposite of Wal-Mart, the study concludes, by offering more high-end items as well as more private-label, natural, and organic products. Rather than reducing prices overall, grocers should run more sales promotions.

When a Wal-Mart comes to town, retailers "should be scared," one of the study's authors, Dartmouth professor Kusum Ailawadi, told the Wall Street Journal's Independent Street blog. But "it's no use to blindly cut prices" because "price-sensitive consumers will move to Wal-Mart anyway."