CONWAY, Ark. — Wal-Mart Stores Inc., which became the nation’s largest retailer by offering its customers low prices, tried to force competitors out of business with that policy, a judge ruled Tuesday.
Judge David Reynolds said Wal-Mart violated state law by selling some drugs and health and beauty aids below cost at its store in Conway. He ordered an end to the practice and awarded the plaintiffs, three independent Arkansas pharmacies, nearly $300,000 in damages.
The decision was the first predatory-pricing ruling against Wal-Mart, which critics have blamed for the demise of some long-established merchants in small towns and cities around the country. But it was unclear whether the decision, which applied only to Arkansas, might lead to similar rulings outside the state.
Wal-Mart said it would appeal the ruling to the Arkansas Supreme Court. Robert K. Rhoads, Wal-Mart’s general counsel, warned of higher prices “not just for Wal-Mart customers but customers” at retail stores throughout the state.
Investors apparently shrugged off the decision and the possibility that it might lead to more suits against the big retailer by smaller storeowners. Wal-Mart stock fell 75 cents to $25.75 a share on the New York Stock Exchange.
And some retail analysts said the chances of the smaller stores prevailing would be small if the case is appealed outside state courts. Terence McEvoy of the brokerage firm Janney Montgomery Scott Inc. in New York predicted the U.S. Supreme Court would reverse the decision if the case got that far.
The ruling is “blatant restraint of trade, which at one time was allowed and in the current environment no longer is,” McEvoy said. “It’s a state law and today’s environment is much different than when that law was written. Court decisions tend to go with the times.”
Wal-Mart, which is based in Bentonville, Ark., admitted in a two-day trial in August that it priced some items below cost as a strategy to draw customers, but not to drive local druggists out of the market.
Reynolds based his ruling in part on Wal-Mart’s in-store price comparisons of products sold locally by the plaintiffs and other competitors. The judge also noted a variation in prices of Wal-Mart products in other markets with more and less competition, as well as the company’s stated policy of meeting or beating the competition without regard to cost.
Matthew Adlong, a lawyer for the three pharmacies who sued Wal-Mart, said small retailers nationwide were awaiting the outcome of the case to decide whether to proceed with similar cases against Wal-Mart and other retailers.
The lead plaintiff claimed victory for small, independent retailers nationwide.
“It’s important to beat Wal-Mart. They were literally driving the small people out of business,” said druggist Dwayne Goode, who said he got fed up with trying to compete with Wal-Mart’s pricing, and filed suit two years ago. “There’s no way anyone can keep their prices down with Wal-Mart and survive.”
Besides Goode, who owns American Drugs in Conway, the plaintiffs included owner Jim Hendrickson of Baker Drug Store, also of Conway; and Tim Benton of Mayflower Family Pharmacy.
They claimed Wal-Mart’s pricing policy violated Arkansas’ 56-year-old Unfair Practices Act, which bars merchants from selling items at a loss with the intent of harming competitors.
Wal-Mart, which had more than $55 billion in sales in 1992, became the nation’s biggest retailer in 1991, largely through its low-price policy.
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