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?
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Comments
As a retailer of American Made in the USA to order for quality home decor products – we fully understand the decline in Walmart sales – we are ALL tired of seeing Walmart support other countries in the name of the all-mighty dollar, especially in a time when we need to focus on American Made. That is why we support American workers and keep jobs in America with our products. Things you will definately NOT find at Walmart.
The overall point of the article is a sound one, that Walmart sales should not be a significant indicator for the country’s economy. However, that point gets somewhat diluted when you compare apples and oranges, or in this article, same-store sales for Walmart against total/quarterly sales for Target, Dollar General, etc. To provide a truly accurate picture, either illustrate your point with same-store sales OR quarterly sales metrics for all retailers.
This blog hits the nail on the head. My local Walmart has been “improved” like many US Walmarts. This means it looks more like Target with less cluttered aisles and shelving not being as tall. It also means fewer items sold, fewer toasters etc on the shelves so likely anything worth buying is not in stock, and the final insult is higher prices. I go to Walmart to save money and when they haven’t stocked what I want or it costs more than other stores, I go elsewhere. It’s that simple- carry fewer goods and raise prices and consumers will take their money elsewhere.
I would suggest that many changes the company made in how they run their stores made in the last two years have hurt sales and needs to be re examined. Too much micro managing, emphasis on cutting costs over customer service and an inventory control system that prevents merchandise from being stocked adequately. Sales decline result. Sam Walton once said “Listen to your employees, they are your best source of ideas.”
They’re also the first people the company should turn to to try to figure out why sales are down.
Joe you are right, Walmart started down sizing with the amount of different products. I have found that some times a cheaper off brand can be better than name brand , but not always. But if a store has those products where i can choose if i want to buy it, then its my choice .Same with can and box goods my choice, I am a born and raised in this US OF A proud of it . But let me tell you this , If it was not for stores like Walmart everything would be sky high and i hope people know this , that is why many years ago 5 and 10 store came about someone seen the need for cheaper items to go on the shelves at the store.
Cheaper prices is good for all and competition keeps it that way…….So that is about it over seas products keeps everything affordable…………
You couldn’t be more right that Walmart’s latest results are not a indicator of the economy. I think that your comparison (although not 1 to 1 for performance) shows that other retailers are taking share. The EDLP play works well when consumers are on auto-pilot with their spending and just want to maximize their total spend. However when the total spend comes down consumers will choose on value. Every purchase decision has to count and buying the absolute cheapest foreign made shirt may not be the best choice. Walmart’s focus should continue to be on change. Dated thinking may hurt their performance.
PS. We should all worry when Walmart doesn’t do well. We don’t want to upset the Chinese.
Wal-Mart is a reverse economic indicator. People shop there when they have less money, so same store sales declines would indicate that things are turning up and people are spending their money at nicer retailers.
Wal-Mart has strayed so far from the Sam Walton era as to be unrecognizable now.
Many of the stores have become third-world countries, dirty, crowded, poorly run, unshoppable. The employee (excuse me, associate lol) environment has degenerated even more. The company once had employees who were fanatic in their support and “ownership” but that has been destroyed by the new direction from Bentonville.