Wednesday, April 27, 2011

As WalMart is my witness, consumer budgets are stretched thin...

WalMart didn't reach the number one spot on the Fortune 500 list by being wishy-washy in its offerings. No, the company has seen incredible success because it lives up to its brand promise every day by offering consumers the opportunity to Save money. Live better. Since it first opened its doors in 1962, the world's biggest retailer has fueled company growth by consistently offering low prices to its customers.

Today, WalMart is struggling. The company has seen seven consecutive quarters of declining sales.

In an article in the Wall Street Journal, Mike Duke, WalMart's CEO, says that for the WalMart consumer, "there is more pressure today than a year ago," and notes that rising gas prices are impacting the consumer's ability to purchase other goods, like those sold at WalMart.

What does it say when a company known for its focus on cost-conscious consumers is struggling? That too many people are finding it very hard to make ends meet in America.

Here's the story:

Wal-Mart Sees Pressure on Customers

By KAREN TALLEY
Wal-Mart Stores Inc. Chief Executive Mike Duke reaffirmed the company's commitment to get U.S. sales back on track, but said customers are increasingly finding it hard to spend.
There is "more pressure today than a year ago" on Wal-Mart's core customers, Mr. Duke said at an executive breakfast sponsored by The Wall Street Journal. (News Corp. owns The Wall Street Journal.)
Customers continue to do heavy shopping at the beginning of the month when paychecks come in, but buying tapers off after that, showing they are already struggling. Consumers are now further pressured by rising fuel costs. Gasoline prices, which are running over $4 a gallon in many parts of the country, "are really having an impact on the consumer," Mr. Duke said.
Consumers are also dealing with inflation in key areas like fresh foods, while at the same time enjoying lower prices in more discretionary areas such as consumer electronics.
Wal-Mart is trying to position itself as the place to reduce gas use by being a one-stop-shopping destination with the lowest prices. The approach is part of the retailer's larger plan to add new customers and win back those that left when merchandise selections were winnowed.
Striking the right levels of pricing and compelling assortments are Wal-Mart's greatest challenges to stop a slide in U.S. same-store sales, Mr. Duke said.
Mr. Duke said a key strategy is to "widen the gap of savings" for Wal-Mart shoppers.
Prices at Wal-Mart already pressure mass merchants and grocery stores in particular.
Mr. Duke also said the company plans to be a leader in e-commerce and welcomes high-tech shopping innovations. He added that customers are seen in its stores using mobile devices to comparison shop, which the chief executive says plays into Wal-Mart's low-cost approach. In general, Mr. Duke said, "The consumer has learned and is paying more attention to how they shop."
Wal-Mart's efforts to bring in more customers are already seeing traction, Mr. Duke said, but he didn't commit to a time that Wal-Mart will break what is currently a seven-straight-quarter run of declines in sales at U.S. stores open more than a year.
Mr. Duke, who spoke about U.S. operations on Tuesday at another event in New York, received a different reception about a quarter of the way through his comments on Wednesday in an atrium at Bryant Park in midtown New York. About 60 union representatives, community activists and a band gathered outside to drown out his comments—but Mr. Duke continued on.
A representative said the group is protesting Wal-Mart's possible entry into the city. Mr. Duke had said earlier, "I do hope I get to make more visits to this great city," but added the company has nothing to announce.
It's been no secret that Wal-Mart is scouting locations in New York and unions have been protesting the move.
Mr. Duke said a New York Wal-Mart makes sense, given that city residents last year spent $195 million at Wal-Marts outside the city.
Outside the U.S., China "is probably our largest retail growth opportunity" because of its growing middle-class population, Mr. Duke said.
Write to Karen Talley at karen.talley@dowjones.com

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