Wal-Mart Looks to Reverse Same-Store Slide

Discussion
Aug 18, 2010
George Anderson

By George Anderson

The good news for Wal-Mart and its investors is the world’s largest retailer posted a higher-than-expected profit in the latest quarter and raised its guidance on what it expects to earn for the full year.

The bad news is that the chain’s business continues to head in the wrong direction in the U.S. with same-store sales falling for the fifth consecutive quarter and no clear indication from the company that it knows how to reverse the slide after a series of merchandising missteps and executive changes.

"Wal-Mart has not done the lifting needed to retain aspirational shoppers gained in the throes of the recession. As a result, this has left Wal-Mart exposed to a core lower income customer base that spends cautiously on paycheck week, and not necessarily at Wal-Mart (dollar stores instead)," wrote Brian Sozzi, an analyst with Wall Street Strategies, in a report to investors.

According to Mr. Sozzi, "Consumers reacted with a collective yawn to Wal-Mart’s bread and butter price rollbacks in June and July.  We believe consumers found stronger assortments in grocery and apparel from Target (TGT is running positive traffic), and surprisingly more attractive price points at traditional grocers."

Mike Duke, president and chief executive officer of Wal-Mart Stores, Inc., said in a press release, "The slow economic recovery will continue to affect our customers, and we expect they will remain cautious about spending," adding "Walmart is committed to our mission of saving people money so they can live better."

The retailer is also going back to some of the tactics that helped it grow its business during most of the Great Recession when many others were seeing declines.

Jeff Stinson, an analyst at Cleveland Research Co., recently wrote that Bill Simon, the new CEO of the U.S. Walmart division, is reauthorizing items discontinued in the chain’s SKU rationalization program and bringing back promotional displays to the front of stores.

"We are seeing the ‘old’ Wal-Mart approach surface on merchandising as well as pricing," Mr. Stinson wrote to investors, according to a recent Bloomberg Businessweek article. "Rebuilding top-line sales looks to be the No. 1 objective."

Mr. Simon said in a recorded message to investors announcing the most recent quarter’s results, "We’re confident that changes we’re making will improve top-line sales by the fourth quarter."

Discussion Questions: What is your assessment of Wal-Mart’s performance in the past year or so and what do you expect from the retailer going forward? What does this all mean for competitors to the world’s largest retailer?

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25 Comments on "Wal-Mart Looks to Reverse Same-Store Slide"


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Gene Hoffman
Guest
Gene Hoffman
10 years 8 months ago

Declining same-store sales over the past few quarter with greater profits suggests tighter internal controls and higher prices despite those famous rollbacks.

There comes a time when you are bigger and heavier than all the other guys that you become a wee bit less agile. It is then that the smaller knowledgable guys start nipping away … just as the recession has also done to Wal-Mart. Perhaps when the economy gets better this problem shall pass away.

Bob Phibbs
Guest
10 years 8 months ago

Whoa, wait a minute. Pundits here and elsewhere were telling us frugality, scrimping and discounters were the “new normal.” Now we’re finding out WM can’t increase their YOY sales for over a year while premium lines are doing well and even expanding?

Maybe shopping in a warehouse with neon lights, fake greeters and commoditized products isn’t the wave of the future after all. Sorry, I welcome this news.

Paula Rosenblum
Guest
10 years 8 months ago

I’m a bit confused. WHAT new customers did it pick up during the Great Recession? Walmart has had 4 consecutive quarters of negative comps. What we all (including me) thought was “Walmart time” turned out to just be – “stop spending money for a while time”.

To be frank, I thought WM’s messaging last year was pitch perfect. It just did not translate into more sales.

I am beginning to think the core problem is not so exotic – I believe the company has saturated its target market. Its existing customer has no more money to put in the marketbasket (and increase top line sales by selling more units) and no matter how the advertising plays, a $400 billion dollar company can’t really reinvent its brand. In other words, for someone like me, even if the prices are a couple of sheckels lower, I’m still going to buy at Publix.

Successful retailers have faced this problem since time immemorial. There is no such thing as an infinite market.

Marge Laney
Guest
10 years 8 months ago

Project Impact, and the moves to hold on to the higher end shopper who veered into their stores in the throes of the recession contribute to the numbers we’re seeing now. But, I think the biggest problem was SKU Rationalization which sent their loyal core to find their favorite brands elsewhere. Once they ventured off the Walmart reservation they found that they could get what they wanted at about the same price down the street. Now that Walmart is rapidly reversing the strategy and adding back the SKU’s it’s apparently not having much of an impact. When all you mean to your customers is ‘cheap’, it’s hard to hold to them if they can find the same stuff at the same price or less elsewhere.

Bill Emerson
Guest
Bill Emerson
10 years 8 months ago
There is a great irony in the recent earnings announcements by Walmart and several other large retailers. They are obviously happy about increased earnings, but wary about the “uncertain economy”. Their earnings increases are attributed to “strong expense control and reductions”. One of the biggest expenses being controlled is store payroll, so more people are either unemployed or receiving lower wages. Secondly, there is SKU rationalization which means fewer orders (and lower employment) for an increasing number of vendors. So, better earnings through lower employment, hmm. There is an old rule in retailing that you can only grow earnings through expense reduction for so long. In Walmart’s case, that will be later this year as they run up against harder comparisons. The same applies for many other retailers this year. They must figure out a way to drive revenue if they want increased earnings. In Walmart’s case, the revisiting of their draconian SKU rationalization is a good start. Macy’s has shown positive results in the My Macy’s project. Walmart used to be masters at this.… Read more »
Susan Rider
Guest
Susan Rider
10 years 8 months ago

Agree with many of the comments. Wal-Mart is suffering the economy woes. Sales are down just because there is not as much money in circulation. Consumers just don’t have it and have cut back, also they have cannibalized some of their earnings through Sam’s stores. Their strategy of putting a Sam’s next to a Wal-Mart is questionable?!. Many consumers who used to buy at Wal-mart now buy from Sam’s.

Agree with the loss of agility just because of their gorilla size which affects some of their earnings and consistency of quality.

David Livingston
Guest
10 years 8 months ago

Wal-Mart is probably not too worried about this because a decline in same store sales should be expected when you start building stores so close together. Investors might not understand the math. What is really important is if Wal-Mart’s sales per square foot is still a certain percentage about the average to their peers. For several years now, Wal-Mart’s sales per square foot has been excessively high compared to Target, Kmart, Sears, etc. So they just kept building more stores. They naturally are going to cannibalize some of their sister stores. Are overall sales increasing? Are overall profits increasing? Are competitors closing stores? Are your sales per square foot still at least 20% above the market average? If the answer to those four questions is yes, then same-store sales is not an issue.

Carol Spieckerman
Guest
10 years 8 months ago
Considering Walmart’s exponential advantage in the international arena (vs. Target and Dollar Stores), the numbers are indeed disappointing. If Walmart’s big strategy was to simply bring back brands and products that were rationalized under Project Impact, I would be very concerned. As it is, I see them bringing in new brands that expand their reach (ala Seventh Generation and Mrs. Meyer’s cleaning products) at the same time. I am optimistic that Walmart will continue to introduce new brands in other categories so that they will be able to differentiate in urban markets against entrenched players (the Aldi’s, dollar stores and now, Walgreens of the world). This will be key to growing domestic numbers and a glance at dollar store door counts will bring a new perspective on “saturation” points in the U.S. As others expand and encroach in grocery (Target, Walgreens), beauty (everyone from dollar stores to CVS), home/hardware (did you notice that Home Depot’s and Lowe’s numbers are both on the uptick?), toys (‘R Us is getting its footing again)…Walmart can’t take anything for… Read more »
David Biernbaum
Guest
10 years 8 months ago

Let me preface this by stating that this is strictly a hypothesis, but I would not be surprised if “same store” sales at Walmart are down because of SKU rationalization. What happens in this process is that many of the incremental purchases made by consumers are eliminated. These include specialty brands, niche brands, and certain purchases that might lack volume but certainly do provide destination traffic and extra spending. This is probably the same case for many other “rationalizing” retailers as well.

W. Frank Dell II
Guest
10 years 8 months ago

Any time a retailer has a price rollback, they are telling the customer they were charging too much before, but now it’s cheaper. For an every-day-low-price retailer, this is the kiss of death. You have lost credibility with customers. Now trust must be re-earned.

On the other side, why is Wal-Mart not talking about the all new super duper private label program? Any time you change the mix between branded and private label you expect a decrease in sales dollars and an increase in profits. If the program is working, these are the expected results. And last but not least, when you discontinue products you run the risk of marginal customers leaving. The retailer might like win, place and show, but how about the customer?

Ed Dennis
Guest
Ed Dennis
10 years 8 months ago

The fact is that Wal-Mart is raising prices and it’s hurting their sales. Consumer are finding better pricing at Dollar General and other mini Wal-Marts. Some of these price increases have been very significant. For instance, in my area, Wal-Mart’s PL cereal (Great Value Bran Flakes) increased from $1.79 to $2.50 (this was six months ago). Did ABC, CBS and NBC report this? No they didn’t, but I did and now I buy my Bran Flakes at Publix for $2.39.

This is why Wal-Mart’s sales are down; their customer base is super sensitive to pricing and someone in Bentonville decided their customers weren’t. Well, they are and Wal-Mart is relearning this the hard way.

Li McClelland
Guest
Li McClelland
10 years 8 months ago

My impression is that Wal-Mart has been adapting their assortments to the economy perhaps a little too much. Case in point: the store near me no longer carries a popular size of the heavy Roughneck stackable storage containers. I discovered this when I went in to purchase 4 more of them. My choice was to buy 4 of their current offering of cheaper, less durable storage tubs which would not match or stack with my existing ones, or go elsewhere to buy the Roughnecks.

Had I bought the cheap ones, Walmart was going to get significantly less same-store revenue from me than in my previous purchases of the Roughnecks. But my decision to go elsewhere to get what I really wanted robbed Walmart of any revenue at all that day.

Charles P. Walsh
Guest
Charles P. Walsh
10 years 8 months ago
Walmart’s latest quarterly earnings report are no surprise to many who have a keen understanding of how Walmart operates. The departure of Eduardo Castro Wright, John Flemming and Dottie Mattison and the promotion of Bill Simon spells the end of a bold and, for the most part, unsuccessful experiment in what was seen internally as a wholesale “turnaround” effort at Walmart. The move from a merchandising to a marketing approach to business largely excluded the buyers from operating as merchants, placed the decision making into the hands of “collective” product strategy and development teams. The old Walmart philosophy and culture, under this youthful and enigmatic leadership team, was seen as a philosophy whose time had come and gone and that a major turn around was needed in operations, marketing, and merchandising in order to save the venerable giant and put it back on its old growth trajectory. This leadership team implemented some very exciting, aggressive and strategic programs aimed at changing perceptions of the company, the layout and physical look of their stores, adding a… Read more »
Mark Johnson
Guest
Mark Johnson
10 years 8 months ago

I am all about a value and making sure that I get good service, but Kroger still beats Wal-Mart. I prefer to shop in a clean retail location with people in my socio-economic group. Could I save more at Wal-Mart? Do I shop at Wal-Mart on vacation when it is proximate (potentially)?

But loyalty and engagement is NOT about price. It is about a comprehensive understanding of your customers and marketing to them effectively.

Mark Price
Guest
Mark Price
10 years 8 months ago
The revenue decline from Wal-Mart begs a key question — “Which customers declined their spending?” Was it the loyal WM customer who shops weekly or was it the more infrequent customer who shops for specific items or specific price rollbacks? The answer to this question is key to diagnosing and addressing the issues. If the decline is not in the core, then the issue is not so dramatic. Traditional customer acquisition efforts can drive in non-core customers, some of whom will become loyal. If the issue is declines among core customers, then the issue is much more serious. Core customers decline their spending due to competition, lack of appropriate items or reduced overall spending in the tough economy. It is possible that the reduction of SKUs has eliminated choice for those best customers, and they have taken some of their purchases elsewhere. Not only must WM address the issue in that case, but they must also do a good job of communicating the increased variety so that lost customers will know to come back. This… Read more »
Craig Sundstrom
Guest
10 years 8 months ago

I’m torn here between the 2 different viewpoints–extrapolating a few quarters worth of results endlessly into the future (as Confucius might say, “the longest fall starts with a single stumble”) versus yawning (it’s ONLY a few quarters)–but I’m leaning toward the latter. I’m not saying WM will return to the growth levels it saw over previous decades; indeed, having saturated the market in many areas it can’t return to those levels, but instead will increasingly reflect the nation’s economy. But no one’s about to preempt them either (at least not in the foreseeable future)…this latest “report” is really a single analyst hyperventilating about very little.

Robert Gilham
Guest
Robert Gilham
10 years 8 months ago

The core issue, as many have pointed out, is the ill-conceived SKU rationalization. Some poor pricing has not helped either.

Wal-Mart had always been the place you could go to find a brand or product you were looking for at a good, if not great price. A reliable one-stop shop. That’s a pretty sound proposition. When they pulled large chunks of entire categories out of the store, that changed the proposition and forced many customers to look elsewhere. Now the proposition is you MAY find what want and it MAY be for a good price. That’s a lot different.

Michael L. Howatt
Guest
Michael L. Howatt
10 years 8 months ago

I am afraid my compatriots have over analyzed the situation as we in the MR community have a tendency to do way too often. It’s been a very hot summer in the middle of a recession. Cheap vacations, a lot of small portion meals and cookouts, lazy days and low spending are affecting all retailers, not just Wal-Mart.

Doug Stephens
Guest
Doug Stephens
10 years 8 months ago

The bad news for Wal-Mart is that their problems go much deeper than this recession. The simplest way I can think to put it is that their business model is no longer viable or realistic.

The recession only precipitated what would have happened anyway, albeit more quickly. Boomers are spending less (and will continue to do so), there’s 15% fewer Gen X to pick up the slack and Gen Y just doesn’t like Wal-Mart. Couple that with a credit backlash of biblical proportions and you have a recipe for disaster that a rollback here and a smiley face there won’t prevent.

My guess is that Wal Mart, as we currently know it, won’t exist in North America in 10-15 years.

Ed Rosenbaum
Guest
10 years 8 months ago

Wal-Mart and YOY sales decreasing? What is happening here? So Wal-Mart comes out with this great plan to increase sales last year and we find out they did not get through to the customers who do not shop there. The current customer base is still reeling with the effects of the economy that only Washington thinks and tells us is recovering. I doubt Wal-Mart’s, or any retailers customers would agree with that.

I am seeing an erosion of their customer base from both the sides and the bottom. Maybe the top too. The Dollar Stores by any name you want to call them are starting to make an inroad into the Wal-Mart base. The Targets, etc, are sure penetrating the base. And the Publix, etc, still have a loyal following that lower prices will not deter.

So what should Wal-Mart do to offset this? Maybe they should go back to who they were before they thought they were the retail answer to the grand master of the universe.

Ed Rosenbaum
Guest
10 years 8 months ago

Another thought regarding Wal-Mart YOY sales decline. Do you think it is possible the decline comes from Wal-Mart’s expansion and growth? Thus they are possibly competing against themselves for the same dollar in the same geographic markets?

Mark Burr
Guest
10 years 8 months ago
No one retailer is approaching or will approach surpassing Wal-Mart in the foreseeable future or the future altogether. It was likely never to be ‘one’ retailer to unseat them or stall them. Who would have ever even anticipated a YOY sales decline for them in the first place? Let alone for consecutive periods. It’s the sum of many parts, not of just one, that have simply put a chink in the armor. No one has unseated them or stalled them for good. They ‘together’ have put some rumble strips in the road. Is that a bad thing? Hardly. The consumer is speaking. They are speaking by not making only one other choice, but many. The sum of the many is having the impact on the great one. There certainly are other factors. One of them is not the recession. If anything, that was to their benefit. One of the larger factors may be their merchandising blunders. The others may be that we’ve simply lost enough jobs that some are waking up to the fact that… Read more »
John McNamara
Guest
10 years 8 months ago

I don’t have many problems with their assortment, in fact I find it better value than most Target and supermarket stores. I just find the service to have gotten real poor.

Walmart was always a self serve store but their staff are rarely found and are more than overwhelmed by their responsibilities.

I find the checkout to be the worst part. The lineups tend to be at least 5-6 customers long and yet only half the registers are open. The cashiers, moreover, are just purely awful at what they do. They are ridiculously slow, often daydreaming, often talking about soccer scores with other customers.

Walmart is a discounter competing with the likes of Aldi. Making customers wait 30 minutes in line only to have their ice cream melt is certainly not a way to win customers.

Ed Dennis
Guest
Ed Dennis
10 years 8 months ago

Wal-Mart could easily eliminate any sales slide by eliminating out-of-stocks. They are supposed to have the best logistics system in the world but last time I was in Wal-Mart over $50 stayed in my pocket because items I was planning to purchase were out of stock.

Justin Time
Guest
10 years 8 months ago

Attention Wal-Mart shoppers. You’ve escaped the beast, and now enjoy the benefits of more selection, higher quality, lower prices and great service at conventional stores, dollar stores and Aldi.

What happened? Wal-Mart is driving their customer base away, with higher prices, so-so quality and less selection.

A no-brainer.

Aldi, meanwhile, operates a footprint, on average one-fifteenth the size of the typical supercenter. While it has limited SKUs, it offers great quality products at EDLP unbeatable prices. Aldi keeps its costs of operation way down because it can operate each store with two or three associates, while Wal-Mart employs hundreds and has a zillion times the utility and related costs that Aldi minimizes.

Doesn’t take a rocket scientist to figure out that Aldi is really onto something, maybe the new wave of selling staples at unbeatable savings.

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