Best Buy Co is cutting prices for the holiday season to thwart fierce competition from Wal-Mart and other discount and online rivals, a move that it warns will hurt margins for the current quarter.

The news took some momentum from Best Buy’s stock, one of this year’s hottest, sending the shares down as much as 11 per cent. But many Wall Street analysts said the strategy is needed as Best Buy, the top US consumer electronics retailer, battles to stay relevant and tries to change the perception that its prices are higher than those of many rivals.

“They have spent much of the past year establishing themselves as a low-price retailer, turning the battle into one on service and selection, one where they have an advantage,” said Credit Suisse’s Gary Balter. “It is important that they don’t slide back into the image of a higher priced retailer.”

Earlier yesterday, Wal-Mart Stores Inc promised to match select Black Friday offers on toys and electronics from rivals Target Corp, Toys R Us and Best Buy. Black Friday falls on the day after the US Thanksgiving holiday and traditionally has been the unofficial kickoff to the holiday season.

While the US economy has been expanding, lower-income Americans have been holding back on spending because of higher payroll taxes and slow job growth. “If our competition is in fact more promotional in the fourth quarter, we will be too,” Best Buy chief financial officer Sharon McCollam said, warning that holiday discounting will hurt gross margins.

The change in holiday strategy overshadowed a better- than-expected third-quarter profit at Best Buy, and dragged down its shares. Before yesterday, the stock had soared 269 per cent, the second best performance in the S&P 500 so far this year, behind Netflix Inc.

In an interview, chief executive Hubert Joly said Best Buy is “playing to win” and does not want “price to be an obstacle” for holiday shoppers. – (Reuters)