By  on March 28, 2012

Now that Wal-Mart has hit 50, what’s next?

The Bentonville-based behemoth has collected a string of superlatives in five decades. It’s the world’s biggest retailer with revenues of $444 billion in the fiscal year ended Jan. 31, and the nation’s biggest private employer with 2 million workers in the U.S. Wal-Mart Stores Inc. recently surpassed the 10,000-store mark worldwide with a unit that opened in Mexico.

The company’s 2011 revenue was bigger than the gross domestic product of Norway. So great is its influence that some economists consider it a proxy for consumer behavior. With 200 million shoppers visiting Wal-Mart every week, the retailer has argued that its sales performance reflects consumers’ economic condition.

RELATED STORY: The Biggest Box: Wal-Mart By the Numbers >>

Now it faces the challenge of how to maintain its dominance as its U.S. expansion slows, overseas markets remain tricky, and the expansion of Internet giants like threaten Wal-Mart — all while being cast as the equivalent of the Big Bad Wolf when it comes to retailing.

“Wal-Mart grew up with the Baby Boomers,” said Robin Sherk, senior analyst at Kantar. “Is this going to be the format of Gen-Y? Is the Wal-Mart proposition as relevant to them?”

The recession and its impact on Wal-Mart’s core shoppers led the company to create its famous tag line, “We save people money so they can live better,” a variant on its pioneering Every Day Low Pricing, or EDLP, strategy. While higher income consumers have recovered a bit, Wal-Mart has said shoppers haven’t increased their spending so the retailer has been investing in Every Day Low Pricing to encourage customers to spend.

“Nothing builds more loyalty with customers than everyday low prices,” said Mike Duke, chief executive officer of Wal-Mart, on a recent earnings call. “We offer everyday low prices in every market. No exceptions. No excuses.”

Duke highlighted the company’s success over the past several quarters in leveraging expenses, but said there are still places where Wal-Mart can save money: “No one controls costs better than Wal-Mart because we do it for the right reason. It’s all for the customer.”

Wal-Mart in the fourth quarter ended Jan. 31 delivered its second consecutive period of positive comp-store sales with a 1.5 percent gain. However, Wal-Mart was hampered by poor apparel sales and its investment in EDLP.

The retailer, which replaced Woolworth on the Dow Jones Industrial Average in 1997, said earnings totaled $1.44 a share in the quarter compared to $1.50 in the previous year’s quarter, and were 2 cents below Wall Street expectations. Wal-Mart this year expects profits from continuing operations to rise to $4.72 to $4.92 a diluted share — a range that shows growth from last year’s $4.54, but also opens up a potential shortfall, given the $4.90 analysts had penciled in. Sam’s Club posted a 5.4 percent comp increase for the quarter. Comps for the 13-week period ending April 27 are expected to be flat or up 2 percent. Net sales are forecast to grow 5 to 7 percent, or $22 billion to $31 billion, in 2013.

“We’ve seen the unemployment numbers come down a little bit, and that’s really good, but that hasn’t stopped consumers’ spending paycheck-to-paycheck,” Charles M. Holley Jr., Wal-Mart’s chief financial officer, said when the retailer reported its fourth-quarter results in February.

The Wal-Mart consumers, whose average income is $30,000 to $60,000 a year, are most concerned about rising fuel, energy and food prices, said David Tovar, a Wal-Mart spokesman. “In the U.S., we’re also seeing changes by reducing internal costs,” he said. “We’re starting to widen the gap in terms of EDLP with the competition, and we saw a positive traffic increase in the fourth quarter.”

“There has been margin erosion with Wal-Mart’s investments in price,” said Sherk of Kantar. “Wal-Mart is trying to squeeze more and more out of its productivity loop. But do shoppers really care about shelf prices when they can get coupons and loyalty cards from other retailers?”

Apparel has been Wal-Mart’s Achilles’ heel, but the retailer may be taking another stab at it. When Wal-Mart in October 2011 closed its New York fashion office, the company said that its emphasis would be on basics. However, basic socks don’t have very high margins and Wal-Mart has been both emphasizing national brands more and adding more opening price points. “They’re going after both consumers,” said Sherk. “There’s a great emphasis on assortment and breadth of assortment.”

Hiking the fashion component, however, has been a struggle for the giant. In 2006, then-chairman H. Lee Scott told Wall Street analysts the company must “get better at fashion basics, not what I would call high fashion. There’s a tremendous opportunity without stepping out to the next level, which is so dangerous for anyone to get into unless you’re a high fashion company.”

Since then, its attempts to bring trendy styles and star labels have met with mixed results. The Miley Cyrus and Max Azria collection foundered. George was tweaked and reinvented multiple times in the U.S. even as it remained a star performer in its native U.K. Norma Kamali’s three-year deal with Wal-Mart ended in November.

While fashion has been declining, grocery has been on the rise. Grocery now represents 56 percent of Wal-Mart’s total business in the U.S.

RELATED STORY: Timeline: Wal-Mart at 50 >>

Wal-Mart knows that if it is to survive and thrive for another 50 years, it must become the predominant force in e-commerce and advance with mobile and digital technology. The retailer in April 2011 bought Kosmix, a company known for its social media genome capabilities, for $300 million and formed @walmartlabs. Since then, Wal-Mart has acquired OnRiot and Grabber, introduced Shopycat for Facebook and launched Ultraviolet, a movie-streaming service. The retailer is said to be developing a mobile payment system more advanced than Google Wallet.

“I’m really stunned by the amount of progress Wal-Mart has made in term of technology this year and its nimbleness,” said Carol Spieckerman, president of newmarketbuilders. “Wal-Mart is exploring social shopping and the leading edge of where retail should go. The next wave for Wal-Mart is encouraging. Very much like Amazon, Wal-Mart is starting to think of itself more as a platform than simply as a traditional retailer.”

Spieckerman believes Wal-Mart can parlay entertainment launches such as “Twilight” and Justin Bieber into limited-time events with exclusive products.

“Wal-Mart has an opportunity to improve its apparel business and leverage its multiplatform marketing capabilities,” she said. Wal-Mart is bullish on its site-to-store program, which makes up 50 percent of its e-commerce business. Pick-Up-Today gives customers the flexibility of placing an order and picking up their purchase the same day.

To continue reading this article...

To Read the Full Article

Tap into our Global Network

Of Industry Leaders and Designers

load comments
blog comments powered by Disqus