As many have said, poor in-store execution is a contributing factor. Quite honestly, even though we in the industry have been saying the stores are deteriorating, both in terms of execution and cleanliness, nothing is improving. That has to drive some consumers who are on the bubble away from shopping there. While Wal-Mart still has checkout clerks who speak understandable English, there is little else to differentiate them from the filthy stripped Kmarts of the 80s and 90s.

Additionally the comment about bad press is on the money. The various efforts by unions and others to present their side of the story, labor abuse allegations and settlements, and the insane benefits memo that leaked out this year all combined to paint a negative picture that drove another segment of consumers away.

So I see a confluence of 2 trends this year. First – some value driven consumers are giving up on them and going elsewhere, while other consumers embrace the “Wal-Mart is bad for America” philosophy and refuse to shop there. The question is will those to trends continue?

First, even Wal-Mart cannot continue to put up double digit year-over-year increases indefinitely. How much more productivity can they get out of their square footage? They may be reaching the limits of the “Wal-Mart” footprint.

Second is the consumer’s declining disposable income. With rising interest rates (and credit card minimum payments), gasoline, home heating, health care, inflation, etc., the Wal-Mart consumer has less money to spend.

This decline in disposable income will impact all but the high-end retailers in 2006. Look for a weak retail year.

I’ve been studying Wal-Mart for a long time and one thing I have learned is that they down-play their success. Unlike most public companies that will bend over backwards to juggle the books to impress Wall Street, Wal-Mart tries to be low key. They do not want to appear to be too successful. My guess is that, because they get so much criticism on being the biggest and the best, they like to have a little negative news to keep federal regulators off their back. Read carefully exactly how Wal-Mart words their reports and then read between the lines. One area that Wal-Mart downplays is their supermarket sales. They will often say that 30-35% of supercenter sales are grocery, but in reality it is only the supermarket side of the store. When you take into account normal supermarket merchandise that includes pharmacy, health & beauty, baby item, cards, pet food, etc., it gets closer to 50%. If the public and government actually knew just how much larger their supermarket market-share actually is, then more alarms would go off. And that is not what Wal-Mart wants.

Three additional points about where the money went: Wal-Mart is not immune to Internet sales which are tapping all brick & mortar retailers. (Has anyone heard how Wal-Mart.com did?) The food portion of Wal-Mart’s business is highly susceptible to trading up at holiday times. The Wall Street Journal reported yesterday that 2005 was the first year since the depression that U.S. household expenses exceeded income.

Wal-Mart’s real Christmas sales, like most retailers’ Christmas sales, will be unknown until after January, when most gift cards have been spent. According to the article in the Pioneer Post Dispatch posted today on RetailWire, $30 billion was spent on gift cards. This revenue won’t translate into sales figures until after the cards get redeemed. Publicly-held retailers who report their sales figures should start reporting their gift card figures with the same frequency, since gift card volume is major, compared to the tiny comp sales increase percentages. Furthermore, gift card volume may be a key customer loyalty indicator and predictor of future sales trends.

Once again, the giant is transforming itself in order to elevate the bar for its would-be competitors. As it transformed the grocery industry, so will it the electronic industry as well as other industries which may feel safe from its reach.

Wal-Mart is not doing badly; their level of sales is still phenomenal. If anything, the a slight blip in sales should be a wake-up call to management. As Sam said, “Only the consumers can fire you.” If consumers are buying elsewhere there is a reason. Continued growth in other countries or by opening more stores or by creating new formats can add new consumers, can change the mix of consumers, can keep sales growing. However, it can also mask fundamental problems with long time loyal consumers. Determining where sales slipped and with whom is critical for future success.

Very good points here. It sounds like it is all in how you choose to look at it.

Wal-Mart is still #1 and that will not change anytime soon unless unforeseen forces come to play.

How about comparing the performance of companies that return a larger portion of company profits to actual workers (salaried or hourly at the ground level) compared to those that run as an Empire with the spoils to the top.

I suggest using the standard measures and adding execution of programs to the mix as that is both good for consumers and the trade.

Wal-Mart’s low sales growth simply shows they are prone to the same challenges as us much smaller retailers. We operate in 3 regional malls in North Carolina, and I know of very few retailers who had a great Christmas in 2005. Several kiosk operators I talked to were lucky to sell $10 in a day, until two weeks before Christmas when people finally began to spend some money. For us, despite having a hundred or more new SKUs this year compared to last year, we were only able to pay off some debts, and were not able to bank any windfall profits to help us in the coming slow months.

The way I read the article, all the doom and gloom is based on a slightly lower rate of growth in same store sales than investors would like. So what? This doesn’t really grab me as a valid news story. Obviously when anything gets as big as Wal Mart growth has to slow somewhat; it doesn’t mean they have peaked or are starting to decline in any way. Their sales still increased (although how this reflects on profits rather than prices is yet another issue that is not being addressed in the present discussion). Yes, many of the observations made have an element of truth: consumers are reconsidering where and how they spend their money and what they expect to get for it; vendors will have to look elsewhere if what they are getting for their own hard work is insufficient; bad publicity is increasing awareness of how employees and executives are treated; the loss of local businesses and communities, which may have seemed a fair trade in the short term is now becoming noticeably less so…If I were a shareholder, or a member of the mega rich family crying over a teensy weensy diminution in growth, I would not panic but would start looking at a course of preventative action rather than whinging all the way to the bank.

No offense intended to the analysts quoted, but I’d like to know precisely what Wal-Mart has “failed to execute as well as they’ve done in the past” and specifically where Wal-Mart has “dropped the ball.” I’d also like to know how one of the analysts is measuring “morale”? Has executive turnover increased? Where’s the evidence? Anecdotal phone calls with a small sampling of employees? In a company the size of Wal-Mart? If there’s a “morale” problem, an analyst should see it in operating ratios, employee turnover, and other hidden indicators of an issue.

Wal-Mart’s comp store increases have declined to a low single digit sustainable level. Oh my. Can someone please tell me ANY retailer who has sustained as consistent and lengthy a track record of comp store gains as Wal-Mart has? Will someone with actual retail experience please give me ANY other retailer who has NOT experienced a cyclical pattern in comp store performance when measured over long periods of time?

Do I think Wal-Mart can do a better job of merchandise assortment planning and execution across specific categories? Yes, I do. But then again, I have similar beliefs concerning almost every retailer I shop.

Wal-Mart may have “issues.” I’m sure they do have challenges. Dig into the annual report and tell me if you can find proof of them. Large systematic failures have business symptoms. I’m not an expert, but I can’t find them. For now, I’ll rest on the side that Wal-Mart’s issues are in the “small and being managed” category. When I see significant shifts in market share in key marketbasket categories, or erosion in margin or operating ratios…then I’ll be in the “oh my” category.

Can anyone else?

I’m no friend of Wal-Mart and I agree most of the poor PR is of their own devising.

But until their growth rate is down to single digits either below or within shouting ditance of the rest of the retail world, it’s hard to see how they are going to lose their place as the largest retailer in history. They are still growing faster than the economy as a whole (i.e. gaining share) and I can’t quite see how to define that as losing.

I think that Wal-Mart has less opportunities for “easy growth” than they have had in the past. They have pretty well saturated the rural southern sections and now are faced with the west coast and major metropolitan areas to provide their growth. These new areas have more expensive land costs and political opposition that they didn’t have to face before. Union challenges are much stronger in these areas and the tide of public opinion may be turning against Wal-Mart in general. I believe Wal-Mart will be fine, but they may have to adjust their growth projections downward and re-educate investors as to their expectations.

With all the external — and internal — factors facing Wal-Mart these days, it would be easy for them to take their eye off the ball.

They are upgrading their apparel with Asda’s George label along with some other lower priced national brands. Home electronics needs some help. They could go a bit more upmarket on this without losing customers. Quality counts in this area. Not every piece of consumer electronics is disposable — especially for lower income shoppers.

As to Wal-Mart’s numbers, they are a bit soft. But they are also continuing to grow, simply at a slower pace. Maybe Wall Street sees the chink in Wal-Mart’s armor. However, they should visit a few Wal-Mart stores and what they’re going to see is traffic that’s as heavy as it’s ever been.

Wal-Mart is suffering from multiple attacks from competitors, labor unions, labor-related problems, Wall Street and many law suits daily. All these concurrent events take a lot of time and energy out of the daily grind of running a business, particular a huge company like Wal-Mart. Wal-Mart will prevail. Traditionally, upscale customers would not shop at Wal-Mart for wardrobe. However, its new George line is effectively competing with fashion houses like Gap and the Limited — still at lower prices.

People tend to lend too much credit to Wall Street. These are people who’ve got nothing to do but crunch numbers and push papers daily and nothing altruistic. My experience indicates that if your customers are happy, your service is good and your products are what you claim they are, you will be fine. Ignore Wall Street. Analysts will put some numbers in the computer grinders and call you and ask what do you have to comment about their numbers generated by the computers. Usually, a “no comment” is fine. In the long run, if one continues to worry about how Wall Street thinks without taking care of the customers, one’s company will not survive.

Realistically, the only retail business models which I think will survive in the long run are Wal-Mart’s and Costco’s. The 50% margin or charging vendors slotting business model will become a dinosaur soon, unless consumers remain stupid and we, as Americans, continue to blame others for our incompetence and laziness, and our labor unions still insist on working less for more money and benefits.

One thing to think about: after paying $20 for a top quality shirt for many years, are we willing to pay $75 for the same shirt with the same quality? Whether one wants to blame Wal-Mart or not, that efficient business model is here to stay and organized union better come up with a better trump card, before it becomes extinct! Wal-Mart will prevail and be around for a long time!

Wal-Mart makes headlines and, right now, any writer or Wall Street analyst who wants to have their story or comments read or noticed feels obligated to mention Wal-Mart. And of course you’ve got to make sure you say something negative because bad news sells. Wal-Mart, although not perfect, is doing very well and like ALL businesses encounters bumps in the road from time to time. However, Wal-Mart is so large that comparisons between it and other retailers requires non-traditional methods of comparison according to a recent report by retail analyst Richard Hastings of the RDH Company. Wal-Mart’s recent move to improve quality of various merchandise categories should be viewed more as a threat to other retailers than a weakness of Wal-Mart’s. Almost 70% of the J.C. Penney women’s clothing customer shops at Wal-Mart for other merchandise lines. The same can be said for Target, where 50% of their children’s clothing shoppers can be found in Wal-Mart. Wal-Mart can’t sustain the growth rates it enjoyed in the 80’s but will continue to be the dominate force in retailing for the next decade at least.

Wishful thinking? Or reality? In this case it may be quite a lot more of the first rather than the later. Sure, there are a line up of issues facing Wal-Mart, but they are also facing every other retailer. Wal-Mart has been the one claiming they are failing to meet their own expectations, not the street. I don’t think anyone competing with them, supplying them or for that matter the majority of their shoppers would say that. The fact is, if you had their expectations, it would be even harder than we on the outside imagine to meet them. To them, their expectations are very realistic. To others they seem beyond the scope of reality. But, when you set out to dominate the world this week and you have to wait for next week – it is a little disappointing isn’t it?

Wal-Mart is simply facing the same pressures that all retail is facing. That is – more and more consumer choice. For almost every product that Wal-Mart sells, there are at least dozens of other sources. That’s the reality.

What has been shown of late is the willingness of the consumer to seek more sources, make additional stops, and search variety more than ever before. One stop and one source is less and less the likely result for the consumer. It became true for the supermarket quite some time ago. Today, its true for almost every type of retail product. It’s the same reasons that traditional department stores find it difficult if not impossible to survive today. There are too many other choices.

Wal-Mart like any other retailer will have to continue to convince their customer that price and low quality product is worthy over other choices. We all know that is possible. It is possible however, only when others fail to show a reasonable alternative. Wal-Mart has both issues. Elimination of the alternative is actually impossible (although they don’t believe it) and maintaining your place as the lowest price is difficult, but doable.

Worth noting in closing, is the mention of fuel prices. It’s a twofold problem for Wal-Mart. First, they have the issue of costs of logistics. But secondly, like Costco mentioned in their results, the increasing fuel prices and volume of fuel sales has had significant impact on margin. It’s likely that for Wal-Mart, fuel is becoming an equal to any other segment of their business due to its growth in the past couple years in particular. Mass Merchants selling fuel have yet to successfully blend the volatility of this commodity into the trends of normal operations. At their level of volume, it is significant in its contribution or lack there of to margin.

You only have to look at their store comps to know they’re in trouble. For the past several years, their store comps have been decreasing. For 2004, according to their annual report, they were 3%. When you realize Wal-Mart is now accepting some price increases from vendors, this 3% gain is pretty slim. This is what Wall Street is concerned with. The pressure on Wal-Mart is only beginning….. (Remember at one time we all thought companies such as McDonald’s, Kmart, and even A&P were going to rule the world?)