May 17, 2013
Is Walmart Right to Shrug Off Its Tougher Than Expected Quarter?
Walmart did not the post the numbers company execs were hoping for in the first fiscal quarter of the year, but even with same-store sales down 1.4 percent in the U.S. there is a general sense of optimism looking ahead for the rest of the year.
As to what went wrong in Q1, Walmart U.S. president Bill Simon chalked it up primarily to a delay in tax refunds and the weather.
"While we don’t generally like talking about weather, it certainly had an impact. Weather sensitive departments like outdoor living, sporting goods, air movement and apparel were challenged, particularly from mid-March to mid-April, when weather was much less favorable than last year," said Mr. Simon on the company’s earnings call. "However, there were bright spots. Where weather was fairly normal, in Florida for example, we had positive comps for the quarter."
Out-of-stocks were not mentioned as a negative factor in the chain’s performance. Earlier in the year, Bloomberg News cited minutes from a Feb. 1 meeting in which Mr. Simon said stores were "getting worse" at keeping shelves stocked. The company has on several occasions denied that it has widespread issues with out-of-stocks despite anecdotal accounts from customers across the country. During his remarks, Mr. Simon said the retailer had increased the cases handled per work hour by associates by three percent during its first quarter.
Despite a mediocre comp performance, Mr. Simon was upbeat about Walmart’s prospects in the months ahead. He cited Nielsen data for share gains in "food, consumables and health and wellness/OTC" for the 13-weeks ending April 27.
He also said the chain’s smaller format stores, Neighborhood Market and Walmart Express, were performing well.
Neighborhood Markets, according to Mr. Simon, had a low single-digit improvement as existing stores attracted greater traffic. "Our optimized assortment and convenient shopping experience is resonating with the customer, evidenced by our positive comps across most of the merchandising areas," he said.
Walmart Express locations fared even better with double-digit comps. "In the second quarter, we’ll begin testing various supply chain initiatives as part of the North Carolina density test," he said, "which will strengthen our understanding of supply chain strategies for smaller stores."
Another reason for optimism is improvements in logistics and operational changes designed to drive down costs. Mr. Simon said improved supply chain processes enabled Walmart "to transport 3.1 percent additional cases per mile driven, helping us to reduce the overall cost per case shipped versus last year."
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Discussion Questions
What do you make of Walmart’s weaker than expected quarter? What do you see as the keys to the company’s future performance in the near and longer terms?
Poll
It’s very difficult for Walmart to have positive same store sales when they continue to open more and more stores closer to each other. Still, when it comes to volume per unit and sales per square foot, they usually blow away much of their competition. We continue to see them out-performing their market averages by about 50%.
Considering the continued rapid growth, I would not be concerned. The goal is to run the competition out of business, and I do predict massive competitive failures as Walmart over-stores many markets. There are going to be more and more grocery chains folding their tents, along with non grocers like J.C. Penney and perhaps Best Buy.
Walmart is currently fulfilling their promises from Project Impact and I expect to see the prophecy come true around 2015.
In my view, Walmart’s biggest competitor over the past few years has been their own stellar past performance. Couple the issue of comparing current performance with the untenable pace of growth of the past with the “cannibalization” that many of their newer supercenters have created with their existing stores, and that spells trouble.
But as consumer confidence and spending increase, it now appears that many of the major traditional supermarkets are regaining some lost ground. This is evidenced by strong same store “comps” for chains like Kroger, Weis, Publix, and Harris Teeter. These chains have strengthened their value proposition with fuel programs and other continuity promotions and appear to be reclaiming lost share back from Walmart.
Given this environment, I think you will see Walmart focus on in-store issues that can effect basket size, such as out-of-stocks and assortment. They may even be prompted to look at reducing margins in key, high volume categories. I also think we will see Walmart continue to look at tangential businesses such as banking and healthcare, as well as continue to open smaller format stores.
Overall however, I believe Walmart will continue to “suffer” through some tough times in terms of same store sales and margins, unless the economy takes another nose dive, in which case, the consumer will once again look to Walmart as a source of personal economy.
Walmart has been responding to competitors’ inroads. It appears they are trying to maintain their position in the marketplace with investments related to new stores, new formats and new strategies for controlling expenses.
As a retailer transitioning to the beat of a changing consumer landscape, their ability to maintain growth simultaneously is challenging at best. I believe this article points out the vulnerability we didn’t expect for Walmart.
The number of employees per store has decreased and out-of-stocks are problematic. What would increased demand do to this situation? Things will not turn around until Walmart has the right products on the shelf when consumers want to buy them.
There are only so many times a shopper will excuse an “out-of-stock” from any retailer before that item gets seeded on another list, such as the Kroger or the Costco trip.
Walmart, given the resurgence of growth by traditional grocery, must pay close attention to the stock on shelves, especially in key food items that could be trip drivers. The risk of losing trips is more real and more urgent than weather patterns and tax refunds.
Once a shopper changes a pattern, the new pattern can quickly become habit, meaning it’s even harder to get that shopper back on the item, let alone back in the store for a trip.
Walmart is now eating part of its own lunch with its aggressive store placements near other Walmarts.
Walmart’s future performance will depend on how successful they are in closing down current competition, which appears to be their objective.
Today, more people visit Walmart than any other retailer except for McDonald’s. May those two giants never be allowed to merge … or be run by the government.
Walmart needs to do a better job keeping the shelves stocked. Too often, especially evenings, you can’t find items on the shelves and employees reluctant to go look for it. You can’t sell what you don’t have on the shelves.
Weaker sales and profits are the signs of the future, unless Walmart aggressively combats the continual loss of market share to online competitors, especially Amazon.com. Walmart will follow Kmart if they do not make changes in selection and take care of the empty shelves that appear more often. “Everyday Low Prices” is meaningless if you’re out-of-stock or getting beat by online merchants.
Could it simply be that the target demographic of Walmart is becoming the broadest demographic as a result of Walmart? Thus, even that demographic can’t afford to shop?
There are some realities in the economy that are rarely discussed. Some are left out of the indexes such as food and fuel. Both have skyrocketed over the past 4-5 years while Walmart has struggled.
The recent unemployment rate improvements mask the fact that millions upon millions have left the labor market and continue to do so each month. On top of that, full time employment is being slashed at an amazingly high rate as the “Affordable Health Care Act” becomes reality, redefining the term ‘affordable’.
I am not belittling the Walmart demographic, but it is a fact that their target is not the top tier luxury shopper. Their operational issues such as out-of-stocks and overall experience compound their difficulties.
On the flip side, even with a 1.4% decline in same-store sales they still dominate the world. For Walmart the fall would take decades if not longer. Proof of that is Kmart. So, there is no question their survival is at issue. However, as their core shopper faces reductions in income of $12-$15K per year for health care on top of normal day to day purchases that are challenging them—Walmart has its challenges.
In spite of the challenges, Walmart still dominates the world. That’s a pretty good place to be in while they figure it out.
Nearly 7 out of 10 adults say that they shop for some type of product at Walmart, so following their results and anticipated patterns from a consumer standpoint is a wise move. The Walmart shopper expenditures tend to rise and fall along similar trend lines to Total Adults, 18+ in nearly all categories, based on the Prosper Insights & Analytics Monthly Consumer Survey.
Average household income among Walmart shoppers is about 9% less than average household incomes, as they are currently $54,859.
The Walmart shopper faced the same hurdle that most American’s faced in the first quarter—uncertainty over the economy, lack of confidence in a strong economy in the next 6 months (only 36.3% feel confident/very confident), rising gas prices are putting pressure on them to drive less, use coupons more, shop closer to home, use store brands/generic more often; they are employed at the same level as the rest of the country, but they faced an added 2% social security cost increase compared to last year.
When asked about “Happiness” levels, Walmart shoppers again mirror Adults 18+ about their Health, Love Life, Home, Work Life, Housing and Neighborhood. They are happier than total adults in with their Family, Friends, Religion/Faith. The only area where they are less happy than Total Adults is with Government.
In a marketplace like this, with such deep uncertainty, positive store operations, cleanliness, solid customer service, and in-stock merchandise are in order. It’s “blocking and tackling.” Walmart will get through, but it won’t be a necessarily brighter 2nd quarter. The uncertainty among consumers is not going to change in the next 90 days.
Walmart can’t keep growing forever so what this MAY be is normal attrition caused by retail plateauing.
On the other hand, the company does seem to be, if not losing its way, stumbling a bit to keep up with changes in its primary shopper demographic.
Tax refunds and the weather will get you killed in this or any other economy. Mr. Bill needs a plan to find a growth solution before his replacement is located and signed to a letter of intent.
Under any circumstance, it is about same store sales and market share. Walmart ownership owns this fact as a means to get where they are and will not tolerate poor results for long as the J.C. Penney’s principals did. Any size company can fail in any financial climate. More importantly any size company can be gone in a single quarter. Time is the killer in business.
Knowing that Walmart is coming off a bad quarter will make the bricks and clicks competition hungrier for revenge and eager to capitalize on any and all gains in order to further aggravate the Walmart loses. As I said, waiting for a sunny day and a broke government tax return will get you killed in this economy. So is it time for bye bye Billy, or another one on the chin?
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It’s very difficult for Walmart to have positive same store sales when they continue to open more and more stores closer to each other. Still, when it comes to volume per unit and sales per square foot, they usually blow away much of their competition. We continue to see them out-performing their market averages by about 50%.
Considering the continued rapid growth, I would not be concerned. The goal is to run the competition out of business, and I do predict massive competitive failures as Walmart over-stores many markets. There are going to be more and more grocery chains folding their tents, along with non grocers like J.C. Penney and perhaps Best Buy.
Walmart is currently fulfilling their promises from Project Impact and I expect to see the prophecy come true around 2015.
In my view, Walmart’s biggest competitor over the past few years has been their own stellar past performance. Couple the issue of comparing current performance with the untenable pace of growth of the past with the “cannibalization” that many of their newer supercenters have created with their existing stores, and that spells trouble.
But as consumer confidence and spending increase, it now appears that many of the major traditional supermarkets are regaining some lost ground. This is evidenced by strong same store “comps” for chains like Kroger, Weis, Publix, and Harris Teeter. These chains have strengthened their value proposition with fuel programs and other continuity promotions and appear to be reclaiming lost share back from Walmart.
Given this environment, I think you will see Walmart focus on in-store issues that can effect basket size, such as out-of-stocks and assortment. They may even be prompted to look at reducing margins in key, high volume categories. I also think we will see Walmart continue to look at tangential businesses such as banking and healthcare, as well as continue to open smaller format stores.
Overall however, I believe Walmart will continue to “suffer” through some tough times in terms of same store sales and margins, unless the economy takes another nose dive, in which case, the consumer will once again look to Walmart as a source of personal economy.
Walmart has been responding to competitors’ inroads. It appears they are trying to maintain their position in the marketplace with investments related to new stores, new formats and new strategies for controlling expenses.
As a retailer transitioning to the beat of a changing consumer landscape, their ability to maintain growth simultaneously is challenging at best. I believe this article points out the vulnerability we didn’t expect for Walmart.
The number of employees per store has decreased and out-of-stocks are problematic. What would increased demand do to this situation? Things will not turn around until Walmart has the right products on the shelf when consumers want to buy them.
There are only so many times a shopper will excuse an “out-of-stock” from any retailer before that item gets seeded on another list, such as the Kroger or the Costco trip.
Walmart, given the resurgence of growth by traditional grocery, must pay close attention to the stock on shelves, especially in key food items that could be trip drivers. The risk of losing trips is more real and more urgent than weather patterns and tax refunds.
Once a shopper changes a pattern, the new pattern can quickly become habit, meaning it’s even harder to get that shopper back on the item, let alone back in the store for a trip.
Walmart is now eating part of its own lunch with its aggressive store placements near other Walmarts.
Walmart’s future performance will depend on how successful they are in closing down current competition, which appears to be their objective.
Today, more people visit Walmart than any other retailer except for McDonald’s. May those two giants never be allowed to merge … or be run by the government.
Walmart needs to do a better job keeping the shelves stocked. Too often, especially evenings, you can’t find items on the shelves and employees reluctant to go look for it. You can’t sell what you don’t have on the shelves.
Weaker sales and profits are the signs of the future, unless Walmart aggressively combats the continual loss of market share to online competitors, especially Amazon.com. Walmart will follow Kmart if they do not make changes in selection and take care of the empty shelves that appear more often. “Everyday Low Prices” is meaningless if you’re out-of-stock or getting beat by online merchants.
Could it simply be that the target demographic of Walmart is becoming the broadest demographic as a result of Walmart? Thus, even that demographic can’t afford to shop?
There are some realities in the economy that are rarely discussed. Some are left out of the indexes such as food and fuel. Both have skyrocketed over the past 4-5 years while Walmart has struggled.
The recent unemployment rate improvements mask the fact that millions upon millions have left the labor market and continue to do so each month. On top of that, full time employment is being slashed at an amazingly high rate as the “Affordable Health Care Act” becomes reality, redefining the term ‘affordable’.
I am not belittling the Walmart demographic, but it is a fact that their target is not the top tier luxury shopper. Their operational issues such as out-of-stocks and overall experience compound their difficulties.
On the flip side, even with a 1.4% decline in same-store sales they still dominate the world. For Walmart the fall would take decades if not longer. Proof of that is Kmart. So, there is no question their survival is at issue. However, as their core shopper faces reductions in income of $12-$15K per year for health care on top of normal day to day purchases that are challenging them—Walmart has its challenges.
In spite of the challenges, Walmart still dominates the world. That’s a pretty good place to be in while they figure it out.
Nearly 7 out of 10 adults say that they shop for some type of product at Walmart, so following their results and anticipated patterns from a consumer standpoint is a wise move. The Walmart shopper expenditures tend to rise and fall along similar trend lines to Total Adults, 18+ in nearly all categories, based on the Prosper Insights & Analytics Monthly Consumer Survey.
Average household income among Walmart shoppers is about 9% less than average household incomes, as they are currently $54,859.
The Walmart shopper faced the same hurdle that most American’s faced in the first quarter—uncertainty over the economy, lack of confidence in a strong economy in the next 6 months (only 36.3% feel confident/very confident), rising gas prices are putting pressure on them to drive less, use coupons more, shop closer to home, use store brands/generic more often; they are employed at the same level as the rest of the country, but they faced an added 2% social security cost increase compared to last year.
When asked about “Happiness” levels, Walmart shoppers again mirror Adults 18+ about their Health, Love Life, Home, Work Life, Housing and Neighborhood. They are happier than total adults in with their Family, Friends, Religion/Faith. The only area where they are less happy than Total Adults is with Government.
In a marketplace like this, with such deep uncertainty, positive store operations, cleanliness, solid customer service, and in-stock merchandise are in order. It’s “blocking and tackling.” Walmart will get through, but it won’t be a necessarily brighter 2nd quarter. The uncertainty among consumers is not going to change in the next 90 days.
Walmart can’t keep growing forever so what this MAY be is normal attrition caused by retail plateauing.
On the other hand, the company does seem to be, if not losing its way, stumbling a bit to keep up with changes in its primary shopper demographic.
Tax refunds and the weather will get you killed in this or any other economy. Mr. Bill needs a plan to find a growth solution before his replacement is located and signed to a letter of intent.
Under any circumstance, it is about same store sales and market share. Walmart ownership owns this fact as a means to get where they are and will not tolerate poor results for long as the J.C. Penney’s principals did. Any size company can fail in any financial climate. More importantly any size company can be gone in a single quarter. Time is the killer in business.
Knowing that Walmart is coming off a bad quarter will make the bricks and clicks competition hungrier for revenge and eager to capitalize on any and all gains in order to further aggravate the Walmart loses. As I said, waiting for a sunny day and a broke government tax return will get you killed in this economy. So is it time for bye bye Billy, or another one on the chin?