NEW YORK — Goldman Sachs on Monday downgraded Wal-Mart Stores Inc. to neutral from buy.

Shares of the discounter slipped by 0.8 percent to close at $47 in trading Monday on the New York Stock Exchange.
Adrianne Shapira, analyst at Goldman, wrote in a research note that, after Wal-Mart finished year one of a three-year turnaround, there was little encouraging data, even when gas prices decreased. She also wrote there were some speed bumps in the turnaround.
“Wal-Mart’s strategic focus has become less clear: Will it continue to target incremental sales from higher-end customers, or will it go back to its roots to reinforce its pricing message?” she queried in her note. She pointed out that, despite a decrease in prices at the gas pump, the discounter was having a “difficult time winning back customers that visited local grocery stores to save on gas.”
She wrote that, while apparel and domestics account for only 15 percent of the sales mix, attractive fashion in the front of the store sends a strong message to the rest of the store, getting consumers to shop across multiple categories. One negative, she said, was that Wal-Mart changed too much too soon. The company also had too much Metro 7 and George products in too many nonurban doors.
The company has been remodeling its store base, and has added new features such as a $4 generic prescription program. But Shapira pointed out that the “magnitude of the changes has been extensive, leaving much confusion among associates and customers.”
She concluded, “Weak sales continue to suggest [that] payback from earlier investments will take more time [than] we had originally anticipated.”
News of Wal-Mart stock’s continued slide came as the retailer said Monday it would begin airing two national television commercials, part of its renewed response to critics. The retailer lately has faced increasing fire from citizens’ groups in urban areas — one of the largest remaining U.S. markets for Wal-Mart to penetrate.
In testimonials from Wal-Mart employees, the ads say U.S. households save more than $2,300 a year with Wal-Mart’s low prices, and that the company provides jobs as the nation’s largest private employer, as well as a health insurance program. The company notes it contributes more than $245 million annually to community programs.
The opposition that’s dogged Wal-Mart for more than a decade — local citizens, civil rights activists, unions and religious groups — was prepared Monday with a rebuttal. In a statement to Wal-Mart chief executive officer H. Lee Scott, 100 urban leaders nationwide urged him to rethink the retailer’s image and see how its wages and health benefits — viewed by critics as below industry norms — won’t help impoverished communities, even with jobs.
The group also sent the statement to selected elected officials nationwide, urging action. A 65-page report, titled, “Wal-Mart and Beyond: The Battle for Good Jobs and Strong Communities in Urban America,” was issued by the Los Angeles Alliance for a New Economy and the Partnership for Working Families, based in Oakland, Calif. The report describes anti-Wal-Mart battles throughout the country, including ones in Los Angeles, Chicago and Atlanta.
Separately, Wal-Mart said its ceo of global procurement, Lawrence Jackson, had resigned, effective Feb. 9. Jeff Macho, vice president and managing director of apparel merchandising, global procurement, was promoted to senior vice president, global procurement. Macho, based in Shenzen, China, will report to John Menzer, Wal-Mart’s vice chairman.
— With contributions from Joanna Ramey, San Francisco, and Kate Bowers, Boston

This story first appeared in the January 9, 2007 issue of WWD. Subscribe Today.

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