The Korea Herald


Wal-Mart plots local retail rebound in U.S.

By 이현주

Published : Feb. 6, 2011 - 18:30

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Humbled and attacked on all sides, Wal-Mart seeks comeback from missteps that hurt sales

SADDLE BROOK, New Jersey (AP) ― The battle for shoppers is playing out in this New York suburb: Wal-Mart versus everyone else.

Dollar stores beckon, their small size ideal for quick shopping. Target offers 5 percent off if you pay with its store-branded card. Costco tempts with high-end, brand-name food and designer clothes at competitive prices.

Bernadette Clark used to visit Wal-Mart here twice a week. Now it’s twice a month. She got fed up last year when Wal-Mart stopped stocking some of her favorite brands and she couldn’t count on low prices.

“It gave me the opportunity to look elsewhere,” she says. “I shop around more.”

Three years ago, Wal-Mart ruled for convenience, selection and price. But today it is losing customers and revenue, and smarting from decisions that backfired.

Wal-Mart is not in danger of ceding its place atop the retail world. But competitors have begun to chip away at its dominance.

Over the last year, revenue at Wal-Mart stores open at least a year has fallen by an average 0.75 percent each quarter, according to the International Council of Shopping Centers. Revenue rose by an average of nearly 1.7 percent at Target, 8 percent at Costco and 5.9 percent at Family Dollar.
“Everyday Low Price” signs are displayed at a Wal- Mart store in Secaucus, New Jersey. (Bloomberg) “Everyday Low Price” signs are displayed at a Wal- Mart store in Secaucus, New Jersey. (Bloomberg)

To fight back, Wal-Mart is again emphasizing low prices and adding back thousands of products it had culled in an overzealous bid to clean up stores. It’s also plotting an expansion into cities, even neighborhoods where others dare not go.

“We are running a better business because our competitors cause us to raise our own game,” Wal-Mart CEO Mike Duke told the Associated Press in an interview.

Wal-Mart expects to halt the decline in revenue when it reports results from its fourth quarter this month.

Unlike most stores, Wal-Mart thrived when the Great Recession struck in late 2007. Its core customers ― households making less than $70,000 a year ― bought more. For many, it became the only place they shopped. Affluent shoppers became price conscious and discovered Wal-Mart’s prices were hard to beat.

All of Wal-Mart’s $27 billion in revenue growth for the year ending in January 2009 came from greater demand for basic items ― food, pharmacy and household goods. Shoppers spent 13 percent more on basics at Wal-Mart that year.

Shoppers also liked that Wal-Mart’s stores looked neater. The company was finishing a major renovation to address complaints that its stores were messy. Wal-Mart widened aisles, eliminated clutter, improved lighting and lowered shelves.

Family Dollar and Dollar General posed little threat. Their stores generally were dingy, and their shelves were filled with low-quality clothing and housewares. The groceries weren’t major brands.

Target, meanwhile, struggled with the perception that its prices were high. And stores filled with non-essential items ― think brightly colored, decorative pillows and kitchen accessories ― didn’t appeal to shoppers focused on making ends meet.

So Wal-Mart had a competitive edge. It lasted until June 2009, the month that economists would later determine was the end of the Great Recession.

Around that time, Wal-Mart’s renovation started to backfire. As part of its store overhaul, it had removed thousands of products from its shelves. Gone were top-selling toothbrushes and other things that people counted on Wal-Mart to stock, like handkerchiefs. Wal-Mart got rid of 20 percent of its groceries, about 10,000 items in that area of the store, says Burt Flickinger, who runs the consulting firm Strategy Resource Group.

Shoppers began complaining that Wal-Mart no longer had items they wanted, even some of their favorite brands. Revenue began to decline.

“We cleaned the stores up, but we cleaned them up too much,” says Duke, who had become CEO just months before, in February 2009.

Wal-Mart’s next mistake was pricing. Over the past year, it had strayed from its “everyday low prices” slogan, the bedrock philosophy of founder and namesake Sam Walton. Wal-Mart was less aggressive about being the low-price leader. Instead, the company slashed prices only on select products, and the deals were temporary. The idea was to draw customers into stores for the bargains and hope they would also pick up other, more profitable items.

Last Memorial Day weekend. Wal-Mart advertised dramatic price cuts on 22 items, including a 40-ounce bottle of Heinz ketchup for $1, less than half price.

But the strategy failed.

The economy was still weak. Customers were scrutinizing prices as many had never before. They discovered that Wal-Mart couldn’t be counted on to have the lowest price on some items, if it stocked them at all.

Wal-Mart’s mistakes have had a lasting sting.

Shoppers are no longer confident that they can “take care of their shopping list on one trip and get rock bottom prices,” says Robert Buchanan, an independent retail stock analyst.

Revenue at Wal-Mart stores open at least a year, a key measurement of any retailer’s health, has fallen for six straight quarters. That is the longest such stretch since at least 1980, when ICSC chief economist Michael Niemira began tracking the figures.

Wal-Mart executives have acknowledged that fewer people have walked into its stores every quarter for the past year compared with the corresponding period a year earlier.

While Wal-Mart has lost shoppers, competitors have gained.