I like Wal-Mart but if they don't get their act together and provide what consumers want they will go bankrupt like many companies before them have.

And of course they will usually be replaced by smarter vendors who zero in on what consumers want and give it to the consumers at a price they are willing to pay.

Source

Wal-Mart in its worst-ever sales slump

By Dow Jones Newswires-Wall Street Journal

Posted today at 6:16 a.m.

Wal-Mart Stores Inc. is in the midst of its worst U.S. sales slump ever. The world’s largest retailer said today sales at its U.S. discount stores open at least a year fell 1.8 percent during the chain’s most important quarter.

The world’s largest retailer earned $5.02 billion, or $1.41 per share, up from $4.82 billion, or $1.26 per share, a year earlier.

Wal-Mart’s struggles are the result of a misstep: To jump-start lethargic growth and counter the rise of competitors such as cheap-chic rival Target Corp., executives veered away from the winning formula of late founder Sam Walton to provide “every day low prices” to the American working class. Wal-Mart, the world’s biggest retailer by sales, instead raised prices on some items while promoting deals on others.

Company executives acknowledge having miscalculated and are adjusting their strategy again. The big question is how quickly the mammoth chain can turn itself around.

Wal-Mart’s shift from its traditional core customer manifested itself in numerous ways. A foray into organic foods didn’t catch on with discount shoppers. A push to sell trendy fashions like skinny jeans bombed. And an attempt to cut clutter in stores to attract higher-income customers wound up undermining Wal-Mart’s appeal to its traditional audience.

The Bentonville, Ark., chain’s up-market push, which began before the recession, succeeded in attracting some well-heeled customers, but at great cost. Wal-Mart lost its iron grip on U.S. households earning less than $70,000 a year — which made up 68 percent of its domestic business — to other discounters.

“The basic Wal-Mart customer didn’t leave Wal-Mart. What happened is that Wal-Mart left the customer,” said former Wal-Mart executive Jimmy Wright, who supervised the company’s distribution networks from 1992 to 1998 before leaving to co-found consulting firm Diversified Retail Solutions.

Wal-Mart has shuffled top U.S. executives in the past nine months and is going back to basics — eschewing fashionable clothes in favor of socks and sweat pants, for example — it an effort to recover market share.

The company remains an unequaled force in retailing, and can’t be counted out. Its overall sales continue to expand, largely thanks to a fast-growing international division that generates roughly a quarter of revenue.

Wal-Mart also continues to post stable earnings despite its domestic troubles and enjoys huge economies of scale that could help it bounce back at home faster than its critics anticipate.

But the company clearly has lost some of its swagger. Wal-Mart finds its business being nibbled away by dollar stores, discount grocery chains and online merchants. The company also lost some of its once-unassailable hold on suppliers.

The company declined to make executives available for this article.

Bill Simon, Wal-Mart’s U.S. president, told investors last fall that many vendors found other stores in which to sell their products after Wal-Mart cut their shelf space to reduce clutter. “If you are a supplier and you are told your bread and butter at your biggest business” is going to be cut 15 percent, Simon said, “Guess what? You are going to pack up your stuff and go somewhere else.”

Some analysts believe it could take years for Wal-Mart to rebound, unless it quickly opens smaller locations to counter the explosion of dollar stores, which plan to add more than 1,000 locations this year. Wal-Mart is trying to break into New York City and other untapped urban markets but initially plans to open just 30 to 40 smaller stores, which top out at 40,000 square feet, nationwide. Wal-Mart’s flagship supercenters average 185,000 square feet.

“Shoppers must be getting whiplash,” said UBS analyst Neil Currie. “They want to be all things to all people and they possibly can, but the supercenter may not be the way to do that.”

Wal-Mart shares, which closed at $55.38, up 63 cents, on Friday, have been stagnant for a decade, rising 5.8 percent compared with 53 percent for Target, 83 percent for Costco Wholesale Corp. and 119 percent for Family Dollar Stores Inc.

Wal-Mart’s earnings for its fiscal fourth quarter, which ended Jan. 28, are widely expected to show that sales at stores open at least 12 months (a standard measure in retailing) have fallen from the prior year. Wal-Mart’s U.S. comparable-store sales already had fallen for six consecutive quarters, an unprecedented losing streak.

Part of the problem is that with more than $300 billion in U.S. revenue, Wal-Mart already commands so large a portion of customers’ wallets that growth has become a Herculean task. Analyst Adrianne Shapira of Goldman Sachs recently estimated that for Wal-Mart to notch a 1 percent increase in comparable-store sales, every person in the U.S. would have to spend an additional $10 at the chain.

Wal-Mart also got away from its promise as a one-stop-shopping destination that offered across-the-board low prices all the time. As growth slowed and Wal-Mart began running out of room to build new supercenters, the chain began touting more discounts on select products — Wal-Mart calls them “rollbacks” — while raising prices on other items, according to interviews with more than a dozen current and former executives and vendors.

That “high-low” tactic, as it is known in retailing, is the opposite of what was preached by the firm’s founder, widely known as “Sam.” Rollbacks reached a climax last spring, spurring healthy sales on products that were discounted, such as Coca-Cola, but failing to lift overall revenue.

“The whole rollback thing spread like a cancer, and it is systemic,” said Scott Edwards, a former regional vice president of operations at Wal-Mart who left the company in 2005.

“Now Target doesn’t have to lower prices, because we have raised ours. I think we have alienated a lot of blue-collar shoppers,” he said.

Wal-Mart now is de-emphasizing rollbacks, returning to its claim of daily low prices.

Meanwhile, reduced staffing at many stores has frustrated some Wal-Mart vendors, who say that a retailer once known for efficiency now often has out-of-stock shelves on weekends.

Procter & Gamble Co. Chief Executive Robert McDonald recently blamed the consumer-goods maker’s struggles to sell more products at Wal-Mart’s U.S. stores with a succinct explanation: “sheer execution” by the retailer.

For instance, P&G and Wal-Mart created a “Family Movie Night” series of made-for-television specials that prominently featured such items as P&G’s Duracell batteries. But “there haven’t been as many displays in-store” spotlighting the products as needed, McDonald said in a conference call with analysts last month. Wal-Mart hasn’t responded to his comment.

The idea to adjust Wal-Mart’s sprawling selection of wares came from John Fleming, a former Target executive who was Wal-Mart’s chief merchandising officer.

He developed a merchandizing strategy he called “Win, Play, Show.” The Win category included items like groceries, which Wal-Mart tried to dominate. In Play, which includes clothing, Wal-Mart tried to compete for market share only on certain iteShow included products like home tools, for which Wal-Mart offered only enough variety to preserve its one-stop-shopping status.

The strategy meant Wal-Mart wound up squandering more sales than anticipated because, as U.S. president Simon later put it, “We were finding that customers went in for 15 items and came out with 12.”

Fleming left the company last year. Fleming couldn’t be reached for comment.

“Clearly, we’ve lost some of our focus on what I would call the core customer,” Andy Barron, a Wal-Mart executive vice president, said at an investor meeting. “You might say, in short, that we were trying to be something that maybe we’re not.”

In its pursuit of wealthier shoppers, Wal-Mart also tried to become a force in organic foods, a campaign that fizzled, according to suppliers and farmers.

Wal-Mart promised in 2006 to democratize organic foods by using Wal-Mart’s buying clout to bring industrywide prices down to a 10 percent premium over traditional foods, instead of 20 percent to 30 percent. But most Wal-Mart customers weren’t interested in paying a premium for organic foods, outside of a few categories, such as milk and yogurt.

“To their credit, they did bring a lot of new organic products to their stores. But a lot of it fell out,” said George Siemon, chief executive of Organic Valley, the nation’s largest organics cooperative and a supplier to some Wal-Mart stores.

Then there was the initiative to reach out to higher-income shoppers by making changes in store design in an effort make them more attractive. Wal-Mart a year-and-a-half ago celebrated the redesign of Store No. 3298, in Kemah, Texas, with a ribbon-cutting ceremony that touted cleaner, wider aisles and a leaner assortment of merchandise. It was to be the retailer’s look of the future. But pretty didn’t sell.

“Wal-Mart just went and broke it,” said mechanic Mike Craig, 41 years old, lamenting that he could no longer find honey, which is now next to the peanut butter instead of near the salad dressings.

So once again, Wal-Mart is back to cramming wood pallets of $8.97 boxed wine and $8 Justin Bieber CDs into the store’s corridors, recreating the messy procession of discount merchandise in the main aisles that the company calls “action alley.” Now analysts are concerned that, in changing direction again, Wal-Mart risks alienating whatever higher-scale shoppers it had gained.