Wal-Mart’s scary ride; sales keep going down

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Wal-Mart is on a scary ride.  It was announced today that Wal-Mart’s sales were off for the seventh quarter in a row.  That is almost two years of decline which is long enough, at least to me, for it to look more like a long-term trend than an aberration.

Those of us who have been used to seeing Wal-Mart dominate the arena are a bit perplexed to say the least.  So, let me address three core questions:  Why is this happening; where are the shoppers going and how long is it going to last?

Why is this happening?

The common wisdom is that Wal-Mart, in its efforts to cut costs, removed too many “minor” brands from its shelves.  The action backfired as those “minor” brands had some very loyal followers.  It appears that consumers followed them out of Wal-Mart’s front door and into the competition’s.

Where are the customers going? 

One Wal-Mart spokesman said they were going to dollar and convenience stores.  Their view was that low income shoppers cannot afford the large sizes that Wal-Mart features. 

That may be where some are going but here is what I think:  I think they are losing consumers to aggressive on line retailers like Amazon (who had a very strong finish to the year) and EBay. 

How long is it going to last?

I think the decline is going to continue for a very long time.  Why, because it is structural.  There is simply more at work here than Wal-Mart’s decision to cut out brands. 

Think about it.  Wal-Mart's business model is based on a drive in shopper.  The problem is that this new generation of shoppers is increasingly favoring the Internet as their place to shop.  Their time spent on line is steadily going up as their time in their cars is steadily going down. 

Bottom line, I don’t think Wal-Mart can fix this one so easily.


7 thoughts

  1. Another point that cannot be dismissed is the quality of the product available at walmart.
    Consumers are becoming more aware that while initially the price paid is lower…when the item needs to be replaced in a short time, educated consumers will go elsewhere and pay a little more for a quality product that will last.
    Consumers are becoming aware that it is more cost effective to spend more for quality.
    Some are willing to save to get it also.

  2. Agreed that the experience of shopping at Walmart is often unpleasant , and for the most part, nobody wants to see their mug-shot with parachute pants on the “peopleofwalmart.com” website, but price and convenience are their dominance, and it’s difficult to drive to Target for an item that is 5-20% more expensive than the identical item in Walmart. Additionally, the convenience of ordering an item on Walmart’s website and having it delivered to a physical location at no cost is going to help Walmart stay competitive. Dollars speak, and for the vast majority of Americans, a dollar here or there is significant. Dollar and discount stores made a huge impact over the past three years, but as markets recovers, Walmart has the greatest potential to gain those shoppers back (it was, after all, Walmart shoppers who fled).
    With that said, however, look at K-mart, the Walmart of it’s period. Nobody every admitted to shopping at K-mart (my parents did), but I think most people did at one point or another … which is why “blue light special” jokes resonated without an explanation. They eventually imploded partly because of the horrible store conditions and extremely poor customer service (i.e. Walmart), but the most influential factor to their decline was price competition and selection from other stores … namely Walmart.
    In the end, Walmart is like the Roman Empire of retail right now. They can continue to control their destiny with aggressive and innovative strategies, but if they slip up and fail to correct quickly, or if there is a Brutus-like revolt from their over-taxed vendors, they will lose their foothold and have a difficult time recovering. Otherwise, don’t expect Walmart to fade too soon …

  3. I see Wal-Mart’s problems as threefold.
    First, Wal-Mart’s long time advantage has been price and availability. They cornered the market on having the lowest prices on a lot of goods.
    But today’s shopper now has even cheaper options such as the Internet and the dollar stores. So Wal-Mart has lost the clearcut advantage it used to have in those categories. Now they have to compete on service, something at which they have been woefully inadequate.
    Second, I believe customers are striking back against horrible customer service to some extent. They would rather pay a small amount more for a more pleasant shopping experience.
    And third, people are learning to do with less. The days of unfettered consumer spending are over. So all of retail is going to suffer somewhat, and general mechandisers like Wal-Mart even more so as different categories shrink or remain flat.

  4. Although I’m sure online shopping has effected most retailers to one degree or another, I tend to agree with Big Box Man… Wal-Mart’s cutting back (on toys for example) and their unpleasant shopping experience drives many shoppers to places where they can get a bargain, great selection, and a more pleasant visit. Even dollar stores & deep discounters offer a quicker in-and-out experience. Wal-Mart is a shopping nightmare. I’d rather go to Target too.

  5. Wal-Mart has reported some disappointing store-for-store sales but there are many factors at work. Cutting the assortments had an impact, especially in groceries but this is not affected by on-line retail. The dedicated Wal-Mart shopper is a bargain hunter and the pricing policy has been inconsistent. Wal-Mart has reversed course to ELP, their mainstay. The middle class has struggled, jobs/hours are scarce and a general merchandise store like Wal-Mart suffers when consumers make due with products they currently own. Merchandising is also an Achilles heel for them and they clearly need to improve it, they suffer from an unappealing front-end experience as well. I simply would not bet against them, they have proven to be adaptive and technologically adoptive.

  6. So since massive toy companies like Hasbro claim that much of their yearly decision making process is tied up with Wal-Mart, I wonder what sort of effect that will have on their business, their product assortments, and ultimately their production decisions?

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