Yes, Walmart is a big company and has a lot of money. But that doesn't change the fact, that based on their FINANCIALS, they are a general retailer that has an operating margin of 6% and a profit margin of 3%.

So for every $100 of products they sell, they only make 3% profit. You can argue that other items have higher profit margins - BUT AS A COMPANY, they ONLY make 3%.

Therefore, a gift card of $100 that you can spend ON ANYTHING the company sells, Walmart HAS to assume that it would cost them $97 - because they only make $3 out of every $100 in revenue.

As a business, you can not assume that the $100 gift card will only be spent on higher margin items such as slushies or gumballs, etc. because (i think) there are no restrictions on how the gift card can be spent.

I didn't think someone would spend a gift card on gumballs. I thought you guesstamated on the 3% number from other retailers and such

Ah ha ha ha! What an absurd post.

Why would Wal Mart lose money here? Because, according to you, "Wal mart can afford it." Yes, that's how big business works! They're willing to lose millions of dollars to help out other companies, just cause they have tons of money and don't know what else to do with it. Next up: Google will provide their services for free to assist the Wii. Nvidia will provide the Xbox720 with its GPU for free next time. NVidia is incredibly wealthy, they can afford it. So why not?

There is absolutely no way that Wal Mart is shouldering the burden here. That isn't how these deals work. Wal Mart is not in the business of helping Sony or Nintendo or Microsoft; if Sony dies, Wal Mart just makes more room for Microsoft and Nintendo games. Simple as that.

When these sorts of sales go down, the manufacturer of the product on sale shoulders most of the burden. Always. Retailers have very little to gain from promoting a single product, especially when the retailer is as big as Wal Mart.

@ I Perdict

Yes, maybe I am thinking too much about it. But this is a video game site where people think too much about all kinds of video game stuff.

I am only trying to analyze, with actual numbers, what the implications are for this specific promo.

I have never claimed that my numbers and assumptions are correct. The point of this exercise is to show/analyze from a BUSINESS point of view, how the numbers work.

You don't need to agree with the result, but I hope that you agree with the process and analysis.

So you are telling me when a convience store has a sale on gas its the gas companies taking the hit?

Or when they have a sale on the soft drinks buy one get one free its the soda companies? Pizza hut - buy a pizza recieve a free 2 liter... I can tell you for a fact after it leaves Coke or Pepsi's hands its all on Pizza Hut.

@ I Perdict.

I was not guesstimating as the Walmart margins are public information from their financial reports. From Yahoo financial stats, operating margins are 5.84% and net profit margins are 3.3%

As an aside, people think Walmart makes a LOT of money, which they do in TOTAL. But if you put it in comparison with other types of businesses, you can see that 3% is actually not very high at all.

Yes. Of course.

And if Pizza Hut has a sale on Coke Products -- not just a sale on "soft drinks" -- then absolutely, unquestionably, Coke is shouldering most of the burden there.

Are you on crazy pills? How could you ever think that retailers would ever choose to lose millions of dollars promoting a single product? What do they stand to gain by promoting the PS3? If their goal was simply to increase foot traffic in the video game section, why not offer a deal on the Wii, the PS3, and the 360?

Right? Why not do all of them! That will increase traffic even further. Besides, Wal Mart is rich, they can afford it!

I use to work at Little Caesars and I can tell you Pepsi did not take the burden when we sold the product for sale.

How do I know?

Because we had no PU for free drinks. We never filled out how many were taken free. The money came out of each stores pocket.

Oh yeah 4 years ago I use to work at Speedway too and I can safely say that their coupons were speedway brand. Free fill up after blah amount of money spent.

Speedway ate those costs.

Why would a gas company redeem the stores own brands coupon?

You think it's a literal amount? As in "we sold 500 sodas at 1 dollar off, so you owe us 500 dollars?" Ugh, you're so far off. It's a much larger deal, with percentage calculations that are decided on way beforehand. Deals like this take months to work out.

I worked at Toys R Us for a long time, and there is no question that Sony, Microsoft and Nintendo were in charge of these promotions. They would come by once a month to check on our product and make sure we were presenting it as they expected us too. They would bring us new banners and signs to hang up. They would bring in bundles to sell.

But guess what? We never literally kept track of every bundle and advertisement. We didn't send a bill for 1.2 million dollars to Nintendo for a DS bundle or something. I'm in the same boat as you in that regard, but unlike you I recognized that these sorts of promotions are being handled by people higher up than I. These are handled way up the food chain, executive to executive, with revenue breakdowns projected and divied months beforehand.

It's rare to see someone be so naive. I ask again: what does Wal Mart have to gain from promoting the PS3? If Sony dropped off the face of the Earth tomorrow, they could just promote the Wii and 360 instead. If the Wii died tomorrow, the PS3 would just get more shelf space. It doesn't matter at all who's selling the product, as long as it's selling. 

Who stands to gain from a 100$ off sale on the PS3? Not Wal Mart. Their foot traffic probably increased .05% last week thanks to this deal. You know who really benefits? Sony.

But Wal Mart probably took the millions-of-dollars of hit. As you said, they're rich. They can afford it, right? That's how big companies work.

@ I Perdict

So you are telling me when a convience store has a sale on gas its the gas companies taking the hit?

Or when they have a sale on the soft drinks buy one get one free its the soda companies? Pizza hut - buy a pizza recieve a free 2 liter... I can tell you for a fact after it leaves Coke or Pepsi's hands its all on Pizza Hut.

It depends on the situation, that's why you have to do an individual analysis and you can't generalize.

In your example, you used Pizza Hut.  However, since Pizza Hut is a private company I think, I will use Dominos Pizza Inc for comparison purposes.  In Yahoo Finance, Domino's has an operating margin of 13.60% and 2.98%. 

In this example, I will use the operating margin again (like in the PS3 calculation) - subscribing to the marginal benefit theory.

 For a $25 pizza the margin is $3.40 in this example.  To add a free item like a 2L Pop, is easy as it may only cost 70 cents.  Therefore, for this transaction, the pizza seller still makes $2.70.

This is unlike the PS3 example, where the retailer does not have enough margin and the discount is so much greater.