Wal-Mart restocks for future

Retailer looks to win back customers lost to recession, dollar stores

Associated PressJune 3, 2011 

  • Retail sales were higher last month, led by discount stores, but the increase was not as high as that in April and fell short of analysts' forecasts as consumers continued to face an uncertain economy.

    Sales at discount stores that have been open at least a year grew by 7.8 percent in May, the best showing by any group of retailers in terms of sales last month, according to a survey of 24 retailers released on Thursday.

    But the overall measure of what are known as same-store sales, compiled by Thomson Reuters, rose 4.9 percent on average in May, slightly below the 5.4 percent that analysts had forecast. It was also below the 8.9 percent growth in April, which was one of the biggest increases in the index in the last few years.

    Analysts said the May figures reflected the continued pressures on consumers from an uncertain jobs market, depressed housing sector, and the recent rise in gasoline prices. But retailers have tried to adapt to attract buyers who are still conservative about how much the open their wallets, and where. New York Times

— Wal-Mart is in a race against time to give the people what they want before they get comfortable shopping elsewhere.

Shoppers who switched to other stores when Wal-Mart decided to ditch best-selling toothbrush brands, craft supplies and bolts of fabric might be hard to win back.

The company has taken nine months to restore thousands of grocery items, including some best-selling brands, it dumped from its shelves two years ago. The idea was to tidy up stores for the wealthier customers it had won during the recession.

Grocery sales have improved, rising in the low single digits in the first quarter. But overall traffic at its U.S namesake stores has been down and revenue at stores open at least a year has posted eight straight quarters of declines on a year-over-year basis.

Wal-Mart says it will take until the end of the year to restock the rest of its stores with items that were culled, from craft supplies to home furnishings. That will go a long way toward restoring Wal-Mart's ability to provide one-stop shopping, which could be a plus as shoppers make fewer trips to save on gasoline.

"The customer, for the most part, is still in the store shopping, but they started doing some more shopping elsewhere, and we want to bring them back. We know that it's easy to lose them," said Charles Holley, Wal-Mart Stores Inc.'s chief financial officer, during a Citi Global Consumer Conference last week.

Dollar stores, which benefited from shoppers trying to stretch their dollars in the recession, are continuing to gain new customers and post higher revenue. The trend has accelerated as gasoline prices closed in on $4 a gallon.

Dollar stores more adroitly maneuvered the post-recession economy. They have expanded their inventory, particularly brand names, become more competitive on price and are expanding to new locations. Meanwhile, some wealthier shoppers are trading back up to the mall or higher-end grocery stores like Whole Foods.

Wal-Mart is increasingly "caught in the middle" between dollar stores and more expensive stores, said Brian Sozzi, an analyst with Wall Street Strategies. "Now, it's trying to return to its roots, but it's facing old competitors - the dollar stores - that are getting much better."

Richard Hastings, a consumer strategist with Global Hunter Securities, gives Wal-Mart two years to woo back its U.S. customers before their new shopping habits are imprinted.

But the restocking has taken longer than Wal-Mart predicted. In November, it had said that the merchandise it cut would be restored by this past spring.

Even when Wal-Mart has been able to get goods to the stores, the company known for its efficiency and precision has had trouble getting them onto shelves, says Cameron Smith, who recruits executives for Wal-Mart suppliers and also serves as an adviser.

Suppliers using third parties to backstop the placement of their goods on the shelves, he said. That adds to their costs.

Pallets of merchandise are crowding aisles, Sozzi notes.

Shares of Wal-Mart have tracked closer to its profits than its domestic sales this past year, and its international business has propped up revenue and profits. Wal-Mart shares are up seven over the past 12 months. But they peaked in late January and have lost 5 percent since the company said it would not predict when U.S. revenue at stores open at least a year will begin growing, after setting a target date for last holiday season and missing it. The namesake Wal-Mart stores account for 62 percent of the company's revenue; international makes up 26 percent.

Though not committing to a specific time frame for turning around its domestic revenue, Wal-Mart has said it expects results to continue to improve as the year goes on.

Wal-Mart CEO Mike Duke is scheduled to address shareholders today. He is expected to once again emphasize how it's re-creating a one-stop shopping destination, where customers can pick up a wide assortment under one roof. The company is adding guns, fishing poles, crafts and fabric back to its stores. In Texas, Wal-Mart is experimenting with washers and dryers to go up against Home Depot and Sears.

To address the increasing threat of dollar stores, Wal-Mart will open the first of up to 20 Walmart Express stores planned for this year. These stores are a tenth the size of a supercenter, or about the size of a typical drug store. Wall Street analysts and the media are expected to get a first look at a Walmart Express store Thursday. The store, in Gentry, Ark., will open this month.

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