The Woes of Walmart

A fascinating story is developing about troubles at Walmart, which has long reigned supreme as America’s largest, most powerful, and sometimes scariest retailer. 

Consider:

– The company’s U.S. comp sales have decreased for the past nine quarters. 

– Its shelves are becoming under-stocked, according to the New York Post. 

– Consumers no longer view Walmart as the cheapest retailer out there.

The last point bodes particularly poorly for the company, as its strategy has been built on “everyday low prices,” and really, not much else. But this positioning has been difficult to sustain, according to this thoughtful analysis: 

[Walmart’s] rapid store growth in prior decades … boosted sales and efficiency so much that prices could stay lower. But Walmart has slowed expansion as existing markets got saturated and big urban coastal markets resisted stores. Last year, Walmart added only about a quarter the square footage it did in fiscal 2007.

As growth slowed, Walmart let prices rise relative to competition to please investors with fatter margins. This was never the officially acknowledged plan, but suppliers for years have said margin growth was a high priority for buyers. Gross margins rose from 22.9% in 2005 to 24.7% last year for Wal-Mart Stores as a whole.

Of course, Walmart remains the largest jewelry seller in America, but within the category, the company has made a number of missteps.  Its Miley Cyrus (costume) jewelry was found to contain high amounts of cadmium.  A while ago, its main jewelry buyer left and joined J.C. Penney, leaving jewelry de-emphasized. 

It also introduced a “green” jewelry line, “Love, Earth”—a fantastic idea, but one that has come under fire from environmental groups. (In fact, Walmart has probably received more flak over “Love, Earth” than if it didn’t introduce a sustainable jewelry line at all. Despite this, I hope they keep at it.)

So who is picking up Walmart’s loss of market share? Dollar stores, for one. But the company is also facing competition from Target, which many now consider cheaper, in addition to more fun:

“Target has this aura. It’s a wonderful place to go into and shop and everybody loves Target,” says Bernard Sosnick, a retail industry analyst with Gilford Securities.

Of course, Target’s annual U.S. sales in 2010 were $65.8 billion, compared to Walmart’s $307 billion. So it’s still the underdog here. But Target’s sales keep growing (including in jewelry). Perhaps the battle between Target and Walmart will play out like the storied fight between Apple and Microsoft. Walmart for now has the power, and the market share, just like Microsoft did. But eventually the better-thought-of Apple triumphed over the more powerful, more prevalent, but not-much-loved Microsoft. Will Target do the same?

 

JCK News Director