Full disclosure: I ventured into my first Wal-Mart (NYSE:WMT) six years ago. I was in Roanoke, Va., and desperately seeking a pair of water wings for our three-year-old once she discovered an indoor pool at our hotel. The experience was daunting for this D.C. girl. There were two aisles and probably 30 bins of sundry water toys, enough to set my head swirling. On my way to check out I spotted a woman whose cart contained a huge frozen turkey and an equally huge box of ammunition. I felt a little shaky walking back to my car.
Love it or hate it, there's no denying that Wal-Mart is a shining beacon of retail success, American-style. Mind-spinning variety? Check. Basement pricing? Check. Recession-busting stock portfolio? Check. Today we peruse the aisles of Sam Walton's legacy to assess why the legion of Wal-Mart shoppers continues to grow, call out what's not working so well, and assess why the retailer may finally be on the verge of conquering the online market.
More, more, more. How do you like it?
There's really no such thing as too much of a good thing at Wal-Mart. If 15 types of duct tape are good, 20 are better. The retailer's bent for gluttony at grab-it-all pricing is clearly working, particularly in these tough economic times. In the last four quarters, Wal-Mart reported revenue of $404.5 billion, more than five times that of the second-largest State-side retailer, Kroger (NYSE:KR), which is followed by Costco (NASDAQ:COST) and Home Depot (NYSE:HD). Target (NYSE:TGT) rounds out the top five.
In keeping with its "more, more, more" strategy, Wal-Mart has been expanding its already dizzying inventory selection. During its recently concluded third quarter, Wal-Mart reported strong sales (albeit not much sales growth), particularly in the groceries and health and wellness categories. And Wal-Mart-owned Sam's Club saw strong performance in consumables, health, and beauty.
The chain also continues to woo wallet-conscious customers with come-hither promotions. Wal-Mart discounted heavily going into the holidays and extended many of its promotions into these early days of 2010 in order to lure customers. Among promotions announced the day after Christmas is a $50 gift card with the purchase of a Microsoft (NASDAQ:MSFT) Xbox 360 gaming console, and half-price reductions on select holiday items, toys and games.
How low can you go?
No one knows better than Wal-Mart the importance of competitive pricing. The question is, how do you know when the price is, indeed, right? Though value is the primary component of the company's DNA, lately it seems Wal-Mart is playing a little Russian roulette with the dollar, particularly online. In October it threw down the gauntlet when it slashed to $10 the price of 10 anticipated top selling books. When Target and then Amazon.com (NASDAQ:AMZN) decided to see Wal-Mart's bet, Wal-Mart sunk even lower, to under $9.
The "me-too" pricing game is tough to win. While Wal-Mart usually starts the gauge sliding, its competitors are clearly following suit. Toys 'R' Us, which is privately held, threw its hat into the price-slashing ring by extending its holiday discounts on certain games, toys, and DVDs through Jan. 2. Which raises the question, if customers are willing to shop around for the drop-dead best price (and these days, they sure seem to), doesn't Wal-Mart need to change up its strategy for ensuring loyalty if it wants to maintain decent margins?
Online and overseas
With Wal-Mart ensconced in America's heartland and beyond, the company's biggest opportunity for growth will come overseas. And there's some fertile ground to sow, as long as the company can sell its bigger-is-better concept in countries not used to such excess. Although reported Q3 international sales were reduced by $2.6 billion as a result of exchange rates, on a constant currency basis sales increased 12%, to $27.9 billion. The third quarter saw sales rises in the United Kingdom, Mexico, and Brazil.
On home soil, the retailer has been busy trying to finally make good on its push to become a formidable player on the Internet after years of unrequited promises. Wal-Mart-owned Sam's Club added members during Q3, driven strongly by its eValues program.
And during the holidays Wal-Mart tested a newish concept aimed at chipping away at the customer base of arch nemesis Amazon. Shoppers were able to order their goods and have them shipped to their local Wal-Mart outlet. In Chicago, the retailer took the game a notch higher, testing a drive-through service where shoppers could pull up to a window and be handed their pre-orders.
Competition, online overpromising
So what could turn Wal-Mart's bouncing yellow smiley face upside down? Certainly the continued pressure of its hungry competitors. Target, for one, has begun remodeling a substantial number of its stores, adding sizable grocery areas. Wal-Mart also needs to finally prove its online prowess if it wants to play in Amazon's sandbox. Although Wal-Mart ranks among the top e-commerce sites based on traffic, according to research firm comScore Inc., the retailer claims only about $1.7 billion in annual online sales. Compare that to Amazon's $19.2 billion sales last year, and you get the picture.
Are you a Wal-Mart shopper? Do you think the retailer is on the brink of an Internet breakthrough, or have Sam and friends hit, ahem, the wall? Let us know in the comments section below.
