According to the U.S. Labor Department, claims for jobless benefits have decreased by 24,000 to 297,000. This is the lowest since May 2007 levels. Also, consumer spending increased 0.9% in the month of March, higher than 0.3% growth in February. These numbers definitely bring in good news for retailers. But, Wal-Mart (WMT, Financial) seems to be showing a different trend.
The retailer’s recent quarter results were not up to the mark and its top line was almost flat. This was mainly because of lower store traffic which led to a fall of 0.2% in the same store sales. The company’s sales were hampered by factors such as colder than usual weather, the shift to online shopping and currency fluctuations.
Tough competition
Wal-Mart faces competition from various kinds of players. It not only faces competition from players such as Target (TGT, Financial) but also from dollar stores such as Dollar General (DG, Financial) and from online players such as Amazon.com.
Target is a direct competitor of Wal-Mart and is facing similar problems of lower store traffic as online stores are much in vogue. In fact, Target plans to close some of its stores because of the growing importance of online shopping. Target too reported its first quarter numbers recently wherein the top line climbed 2% to $17 billion as same store sales in U.S dropped 0.3%. But the bottom line was worse with earnings of $0.66 per share as against the earnings of $0.77 per share last year.
This drop was mainly because of higher expenses related to the data breach before Christmas which resulted in a loss of customer credit card information. Hence, it lost customers’ trust in shopping at Target. However, the retailer still managed to register higher sales owing to its promotional efforts and heavy discounting in order to regain declining store traffic. Therefore, Wal-Mart seems to be in a better position as shoppers continue to trust the retailer for all their shopping needs.
But dollar stores such as Dollar General provide stiff competition to such retailers. Both Target and Wal-Mart is unable to match up to Dollar General’s performance. For instance, Dollar General’s fourth quarter was a blockbuster one with a 6.8% surge in the top line, helped by a 1.3% increase in same store sales, over the previous year. Both customer traffic as well as the transaction size increased during the quarter, resulting revenue growth.
One of the best moves of the company was including tobacco in its portfolio of products which attracted customers. Shoppers who visit the store to buy tobacco also buy some other products, resulting in higher sales. Also, Dollar General’s efficient cost management techniques led to an earnings jump of 4% over last year, clocking in at $1.01 per share.
Ending thoughts
Therefore, it is evident that it’s not only Wal-Mart, which is facing such difficulties in attracting customers selling its products, but also other companies. This is mainly because of the overall problem of lower demand and restrained spending by customers. Further, online shopping has taken away all the attention, which has led to lower store sales. However, with the spring season setting in and companies’ efforts to enhance their online presence, Wal-Mart’s future looks bright. However, waiting for the right time will be a prudent thing to do.
