Walmart Faces Big Hurdles Posed by Uneven Recovery

Walmart faces big hurdles
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The world's largest retailer faces new challenges at a time when low prices and one-stop shopping can be a few clicks away on a tablet computer or smartphone.

Walmart Stores (WMT) built its reputation on everyday low prices and convenient supercenters that allow customers to do all their shopping in one place.

But revenue at established Walmart stores in the U.S., which account for 60 percent of the company's total sales, has declined for five consecutive quarters. Meanwhile, the number of customers has fallen six quarters in a row.

Like many other retail chains that cater to working-class Americans, Walmart is a victim of an uneven economic recovery that has benefited well-heeled shoppers more than those in the lower-income rungs. Moreover, shoppers are no longer willing to spend hours in big supercenters. They're turning to online competitors such as Amazon.com (AMZN), dollar stores and pharmacies.

Walmart's annual shareholders' meeting Friday could offer clues as to how Doug McMillon, who became Walmart's CEO in February, plans to deal with the biggest issues Walmart faces:

Cash-Strapped Shoppers

In an interview with The Associated Press, Bill Simon, CEO and president of Walmart's U.S. stores division, says the top concerns among its shoppers are lack of jobs and gas prices.

Walmart's customers also still are struggling with a 2 percentage point increase in the Social Security payroll tax since Jan. 1, 2013. Additionally, they're facing reductions in government food stamp benefits.

As a result, Walmart's customers have changed their shopping habits. They're switching to chicken from beef, and choosing lower-price brands or store labels on staples like detergent. But they do splurge for special holidays.

"It's been very choppy as to how they choose to spend," Simon says.

To combat this, Walmart stocks up on small packages at the end of the month when money is tight for customers. It's also counting on a new money transfer service it says will cut fees for its low-income customers by up to 50 percent compared with similar services elsewhere.

But America's Research Group's C. Britt Beemer asks: "How do you get more money from shoppers whose disposable income is less?"

Price Pressure

Since the economic recovery, more stores are offering low prices, which has always been a centerpiece of Walmart's success. As a result, Walmart has had to focus more on cutting its prices.

The move seems to be working. According to a Kantar Retail pricing survey conducted last October in the southern New Hampshire and northern Massachusetts area, Dollar General's basket of 21 categories across staples was 12 cents cheaper at $28.70 than at Walmart. In the previous year, Dollar General (DG) was 18 percent cheaper.

And in a separate study conducted a year ago, Amazon's prices on a basket of 59 items was actually 7 percent more expensive than Walmart.com and 16 percent pricier than at its supercenters.

Analysts also praise Walmart's Savings Catcher, an online tool that allows customers to compare Walmart's prices on thousands of products with those of some competitors. If a lower price is found elsewhere, Walmart refunds the difference in the form of a store credit. Walmart plans to expand the tool nationwide after having tested it in seven markets since March.

Still, low prices hurt sales and margins. For the latest quarter that ended on May 2, for instance, sales at Walmart's U.S. stores that were open at least a year fell 0.1 percent.

Changing Shopping Habits

Walmart built tons of supercenters in the 1990s, but Americans increasingly are looking at physical stores as pick up locations after they've already searched online for goods. Or they're viewing them as places to make quick trips for bread and milk.

Walmart's supercenters still account for 80 percent of its 4,000-plus U.S. stores, but the retailer is opening smaller outlets that cater to shoppers looking for more convenience. It now plans to open 270 to 300 small stores during the current fiscal year -- double its initial forecast.

Meanwhile, Walmart is shoring up its online business. It is testing online grocery delivery. And Walmart more than doubled the number of items it sells online to more than 5 million last year. That helped global online sales increase 30 percent to $10 billion-plus for the latest fiscal year. The company now sells more than 7 million items online.

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While the blue states have raised their minimum wages giving more purchasing power for the working class. The red states refuse to raise their minimum wages and would rather have their citizens use more government assistance like food stamps and welfare to get by.

June 05 2014 at 1:13 PM Report abuse +1 rate up rate down Reply
2 replies to teaparty2implode's comment

Why do you separate the nation ? You must be an advocate for the Obama administration with a comment like that. President Obama has divided the nation with class warfare.
Your real issue is political and nothing else, while ignoring reality.

June 05 2014 at 1:21 PM Report abuse -1 rate up rate down Reply
6 replies to seymore.tush's comment

So go donate to your local churches, and food banks. Crying about it, solves nothing.

June 05 2014 at 1:22 PM Report abuse -1 rate up rate down Reply

They bash Wal$Mart because their track record for job creation is better than the Obama administration's record. In this poor economy, Wal$Mart is a blessing, helping people living paycheck to paycheck.

June 05 2014 at 12:19 PM Report abuse rate up rate down Reply
1 reply to seymore.tush's comment

More right wing worthless factless talking points.

June 05 2014 at 1:00 PM Report abuse -1 rate up rate down Reply
3 replies to teaparty2implode's comment

Another let's bash Wal Mart article, with nothing to back it up.

June 05 2014 at 10:47 AM Report abuse +1 rate up rate down Reply
1 reply to jdykbpl45's comment

What do you expect from the liberal media ?

June 05 2014 at 12:11 PM Report abuse rate up rate down Reply