I was in Hong Kong back in January when a seasoned sales rep said to me: “You know Wal-Mart is starting to sound like the old Kmart when it started its decline. Looking back I find it to have been astonishingly prescient. If you want to see what I mean, read the New York Times article, “Wal-Mart Frets as U.S. Shoppers Buy food and Little Else.”
For starters, Wal-Mart just endured its eighth consecutive quarterly drop in same-store sales. As the article puts it: “Same-store sales were all in negative territory in categories like entertainment, including electronics; hard lines, which are items like hardware and crafts; apparel; and home.”
Sales that did occur were largely driven by the sale of foods. Wal-Mart draws a large share of lower income shoppers who have been hammered by recent increases in gasoline prices. Here is how the Times article puts it”
The poorer customers who shop at the nation’s biggest retailers are still on tight budgets. They wait inside the store at the end of each month with full shopping carts until the clock strikes midnight. Then, their electronic-benefit transfers from the government go through, and they pay for their groceries and other staples. They buy items in small packages, which cost less than big ones. And while they are spending more on food at Wal-Mart than they did a year ago, they are buying less in most other categories.
In referring to clothing sales, which are down, one Wal-Mart executive stated: ““where we’re still not executing is in the kids’ and the women’s business.” It’s hard to say from the quote whether the quote refers to all categories or just clothes but it does seem to fit for the toy industry as well. All you have to look at is last year’s horror show at Wal-Mart.
Wal-Mart chief executive Michael T. Duke stated on Tuesday that “comp sales growth remains the greatest priority for me and the entire Wal-Mart U.S. team.”
Ummm, Mr.Duke, why then did your board just change the rules of compensation away from same-store sales (see my May 10 posting, “Wal-Mart in Decline; changes in the rules of executive compensation”?
Never-the-less, Wal-Mart is fighting back. In my next posting, we will look at how.