What 2012 Holds for Wal-Mart
Dec 21st 2011 1:34PM
Updated Dec 21st 2011 5:04PM
2011 has been a testing year for retailers. High unemployment and the pressure of rising gas prices have led to uncertain consumer spending habits. Given this, let's see how the world's largest retailer fared and take a look at what the future might hold.
Wal-Mart (NYS: WMT) had an impressive 2008 during the downturn, but has otherwise been a relatively unexciting holding for investors. Same-store sales recently ticked upward, reversing a recent downward trend, though net income was still down year over year.
Return to basics
Adverse economic conditions have caused many of Wal-Mart's faithful to jump ship and move to deep-discount stores such as Family Dollar (NYS: FDO) and Dollar General (NYS: DG) in the hunt for bottom-of-the-barrel deals. Meanwhile, slightly higher-end consumers have chosen more upscale stores such as Target (NYS: TGT) and Costco (NAS: COST) . Wal-Mart has been stuck in the middle and has therefore focused on making its prices more attractive to lure customers.
Earlier this year, it returned to its "Every Day Low Price" campaign and more recently rolled out its layaway program in a bid to entice financially strained consumers. The reintroduction of the layaway program was first initiated by chains such as Sears Holdings' (NAS: SHLD) Sears and Kmart. As fellow Fool Alyce Lomax states, Wal-Mart is getting set to become a serious "price warrior," which sends a clear-cut message to its competitors -- the war is on.
Wal-Mart is trying to steal shoppers away from its peers by re-establishing its reputation as a price leader, but this will ding margins. Last quarter, it finally managed to return positive U.S. comps, but its bottom line tanked 3%. So Wal-Mart still has some way to go in regaining its lost customers and delivering a more positive performance at home.
The driving factor
One thing working in Wal-Mart's favor is the strength of its international operations. Last fiscal year, it earned nearly 32% of its total revenues from abroad. Wal-Mart International is so big that last year it earned $109 billion and became the third-largest retailer in the world (in terms of sales), behind Wal-Mart U.S. and Carrefour.
This year, Wal-Mart looked to expand operations globally, especially in the BRIC nations, to drive growth. In the first half of the year, Wal-Mart announced that it plans to open 80 additional stores in Brazil. 2012 has a lot to offer Wal-Mart internationally.
It seems Wal-Mart's dream of opening its first shop in India is scuttled for now, but that hasn't stopped the retailer from joining forces with India's Bharti Enterprises to manage a wholesale supply business that may lay the groundwork for it to expand in the emerging economy.
The Foolish bottom line
Wal-Mart seems to be doing quite well internationally and its plans to expand further in developing countries should hold the company in good stead for the next year. But where it really needs to pull up its socks is back home. Its plans to become a price leader may pay off in the short run, but may continue to hurt its margins. To stay current on news and events regarding the companies listed above, use the links below to add them to My Watchlist, a 100% free service offered by The Motley Fool. Fool on!
- Add Wal-Mart Stores to My Watchlist.
- Add Target to My Watchlist.
- Add Sears Holdings to My Watchlist.
- Add Family Dollar Stores to My Watchlist.
- Add Dollar General to My Watchlist.
- Add Costco Wholesale to My Watchlist.
At the time this article was published Shubh Datta doesn't own any shares in the companies mentioned above. The Motley Fool owns shares of Costco Wholesale and Wal-Mart Stores. Motley Fool newsletter services have recommended buying shares of Costco Wholesale and Wal-Mart Stores. Motley Fool newsletter services have recommended creating a diagonal call position in Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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