Entry #2 20200622 Sanghoon

Wal-Mart Gets Clean And Lean

Tom Van Riper, 03.04.08, 5:26 PM ET

In the midst of a deteriorating retail environment, things are looking up at Wal-Mart. And it's not just because of a looming recession.
The giant discount chain, coming off a solid holiday sales season, is once again outperforming many of its rivals in the fight for consumer dollars. Same-store sales were up 2.6% in December, followed by a small but better-than-expected 0.2% rise in January. Delayed Christmas gift card redemptions were expected to lift sales growth in February, the results for which the company is scheduled to announce on March 6.
The easy explanation for the rebound: a slowing economy has more belt-tightening shoppers trading down, creating a relative boom for discounters at the expense of mid-level department stores. No doubt that's part of the equation. Rolling back prices on consumable goods like groceries and pharmacy products is a great way to drive store traffic during tough times, a weapon not available to the likes of J.C. Penney (nyse: JCP - news - people ) or Kohl's (nyse: KSS - news - people ).
But customers used to buying groceries at Kroeger or Safeway (nyse: SWY - news - people ), their clothes at J.C. Penney and electronics at Target (nyse: TGT - news - people ) or Best Buy (nyse: BBY - news - people ) don't suddenly rush to Wal-Mart (nyse: WMT - news - people ) for all their shopping needs at the first hint of economic nervousness. They begin by stopping by once a month or so, to save few bucks on basic staples.
From there, the question is "How do you entice them to come back a little bit more often?" says Britt Beemer, head of America's Research Group, which tracks retail trends. One way Wal-Mart is doing that is through sharper advertising. Never known for its hipness, the company is now embracing more pop culture in its marketing. A recent four-page insert featuring tween sensation Hannah Montana went into newspapers nationwide, the better to lure those recent new grocery and pharmacy customers to return for DVDs or kids' outfits.
There's also evidence that Wal-Mart's investments in store refurbishments are paying off. About 2,600 of the company's combined 3,331 super centers and discount stores have completed renovations resulting in brighter lighting and wider aisles. Beemer's numbers show that shoppers in those stores stay about 14 minutes longer than those visiting the older version.
For Wal-Mart, it's all part of a steady effort to squeeze as much money as possible out of existing assets, while accepting that its days of major domestic growth are over. The company has slashed the rate of new store openings dramatically in recent years, from 8.6% growth in square footage in 2005 to 4.9% in 2007, according to Edward Jones retail analyst Stephanie Hoff.
"If you're opening fewer stores, you're not diminishing the returns," says Hoff, who projects Wal-Mart to cut its square footage growth rate even further in 2008, to 3.9%.
What's more, much of the slowing growth tied to previous store openings is starting to lighten, pumping same-store sales growth figures higher again.
Why? Basically, opening a new store is an extreme method for adding more checkout lines when you've got the geographic saturation Wal-Mart does. A Wal-Mart store doing $100 million in annual revenue is cannibalized down to $85 million after another store opens a few miles away. In time, though, the presence of the new store draws new customers, in addition to the old customers looking to escape the long lines of the original store. Eventually, some customers find their way back to the original store, which now has shorter lines. The end result: Sales at the original store return to the $100 million level, driven by fewer shoppers celebrating a less crowded atmosphere by spending more on an average trip.
According to Beemer, this scenario is now playing out all over the country.
Wall Street is pretty bullish on Wal-Mart right now, predicting earnings of $3.40 per share for fiscal 2008, up from $3.13 from the just-ended year. That's 8.6% earnings growth, twice the projected industry average. Revenue is expected to break through the $400 billion mark for the first time, to $406 billion from $379 billion in 2007.

http://www.forbes.com/business/retail/2008/03/04/retail-wal-mart-biz-commerce-cx_tvr_0304walmart.html