How to fight Walmart

Dartmouth's Tuck School of Business studied Walmart openings in new markets -- how local retailers reacted and Walmart's effect on their sales.

The effect was huge -- a 40% drop in sales for neighboring mass merchants and a 17% drop for grocers.

How did most retailers react to Walmart?:

• Cut prices
• Reduced number of brands carried
• Cut back on promotions

All three are bad moves, according to the study. Kusum Ailawadi, who led the study said that retailers who cut price were merely giving up income, since they could never hope to match Walmart's pricing. And instead of cutting brands, they would have been better off to diversify their offerings, especially on higher-end brands where they would not be competing with Walmart.

In regard to promotions, they should increase, not decrease their promotions. "If a store is offering weekly specials, it's harder to make exact price comparisons," she says.