Bears looking for signs of economic deceleration are using Wal-Mart's recently reported quarterly same store sales declines as evidence of economic deterioration as a whole.† When Wal-Mart (WMT) reported U.S. same store sales declines for the fifth quarter in a row, it seems the consensus opinion was that this was a key economic indicator akin to a consumer sentiment report.† The widespread conclusion was that if consumers weren't even spending money at Wal-Mart, it must be because they were too pessimistic, too broke, too scared, or some combination of all three.
At what point did Wal-Mart become a consumer index and stop being a retailer?† Is it possible that Wal-Mart's same store sales continue to drop because consumers just don't want to shop at Wal-Mart?† And is it possible that consumers don't want to shop at Wal-Mart because they don't like the way the company retails?
If Wal-Mart's same store sales declines prove that consumers are pessimistic, broke, or scared, then the sales at all of Wal-Mart's competitors would have been the victim of that same pessimism, frugality, and fear.† And yet, the opposite was true.
Target's (TGT) latest quarterly sales were up 14%.† Dollar General's (DG) quarterly sales were up 5.1%.† Family Dollar (FDO) saw an 8.4% increase in its quarterly sales.† Dollar Tree's (DLTR) quarterly comps increased 6.7%. ††Instead of concluding that a decline at Wal-Mart must mean a decline in consumerism altogether, perhaps the real story is that the dollars that aren't being spent at Wal-Mart are being spent somewhere else.
Same store sales, of course, are a year-over-year comparison.† And Wal-Mart, of course, was the recession success story of the U.S. retail industry.† So if the behemoth suffered a few declines compared to its stellar recession performance, it really isn't all that troublesome or noteworthy.† But this most recent quarterly same store sales decline is Wal-Mart's fifth decline in a row. which means that Wal-Mart's most recent results are a decline on top of last year's decline.† This cannot be sloughed off on the economy.
While it's true that Target's recent 14% quarterly same store sales increase is on top of a 6.2% decrease in the same quarter in 2009, for Dollar General, Family Dollar, and Dollar Tree the same store sales improvements are on top of increases in 2009 as well.
In fact, Kohl's (KSS), BJ's Wholesale Club (BJ), TJX Stores, Walgreens (WAG), and Ross (ROST) are all competitors of Wal-Mart.† All of these chains reported same store sales increases in August, 2010 on top of the same store sales increases they reported in August 2009.
I find it humorous that Wal-Mart is playing the economy card to excuse its continuing U.S. same store sales slide.† I find it even more humorous that anybody is letting them get away with it.† Isn't "the economy" supposedly the reason why Wal-Mart was breaking sales records during the recession?
Specifically, in May 13, 2008 when Wal-Mart was reporting record-breaking sales and earnings, CEO Lee Scott said, "We continue to deliver against the business model that Sam Walton started -- selling branded merchandise for less. Our business is even more relevant to our customers today, given the current economic pressures."
Versions of that "people shop at Wal-Mart when times are tough because we have the best prices" speech were reiterated with every earnings report throughout 2008 and 2009.† And yet, when trying to explain away its fifth quarterly decline in a row, CEO Mike Duke said this month, "We recognize that it will take time to see significant changes in our comps and that the U.S. economy remains challenging. Gas prices and unemployment continue to influence how our core customers shop."
So, what they're say is that when things were good at Wal-Mart it was because the economy was challenging.† And now that things are not so good at Wal-Mart, it's because the economy is challenging.† It's one way or the other, Wal-Mart.† It can't be both.
The last time Wal-Mart reported positive quarterly same store sales results was in May, 2009.† At that time CEO Duke said, "When economic conditions improve, we believe customers who shop Wal-Mart today will stay with us, because of the business improvements we're making and continue to make." Duke also said, "Customers trust Wal-Mart. As a result of the increasing shift to value, they have long term loyalty to the Wal-Mart brand because we save them money."
Apparently not.† In the absence of desperation and panic, shoppers are not choosing Wal-Mart as often, and they are choosing Wal-Mart's retail competitors more often.† Unfortunately, Mr. Duke, that is plain old consumer preference, not an economic indicator.† The loyalty prediction of May, 2009 just didn't come true and the reasons for that are found on the Wal-Mart sales floor, not on an economic chart or graph.
I don't disagree that the retail industry is probably in for some deceleration in the months ahead. †I did disagree with all the premature euphoria over greatly exaggerated reports of retail industry recovery and acceleration in the first eight months of the year.
So here's my prediction based on the back-to-school sales season results and the state of the economy as a whole.† The retailers who are going to win in the last four months of 2010 are going to be the ones with the deepest discounts, the best retail practices, the strongest customer relationships, and the marketing promotions with the biggest buzz.† In other words, the biggest winners will be the best retailers.
Isn't that the way retailing is supposed to work in any economy?