Discount retailers stand to benefit the most from the effects of an economic slowdown. As consumers become more conscious about their spending, they look for cheaper stores where their daily needs can be met at the lowest possible prices.
Retailers such as Dollar Tree (DLTR, Financial) are the beneficiaries of this trend. The strength of this player lies in its discounted offerings, especially in its strategy of offering products for $1 to lure customers to its stores. Growing foot traffic in its stores led Dollar Tree to expand internationally with more than 200 new stores opened last year. Hence, the company has rather enjoyed the trend of reduced spending by consumers.
Similarly, Wal-Mart (WMT, Financial) has also resorted to the strategy of offering low prices to customers by lowering its costs as much as possible. This has largely helped Wal-Mart beat its rivals, such as Target (TGT, Financial), and move ahead of the competition.
Results as Against Peers
Target beat Street expectations on both the top and bottom lines along with a list of efforts to fight the problem of data breach. On the other hand, Wal-Mart missed revenue expectations by a whisker mainly due to unfavorable currency exchange rates and lower store traffic because of colder weather. But there is more than meets the eye.
Target offered temporary discounts that drove revenue higher. Hence, it might be a temporary phenomenon. On the other hand, Wal-Mart offers discounted prices throughout the year. Moreover, Wal-Mart has a wide international presence whereas Target has a limited geographical presence that makes it less vulnerable to foreign exchange rate movements.
Into The Quarter
Driven by growth in each of the segments, Wal-Mart’s revenue increased 0.8% to $114.2 billion. Since most of the customers are in the low income group, the retailer offered value for money that lured shoppers to its stores. However, problems related to severe winters and lower store traffic led to higher costs. This led to a 3.5% drop in earnings per share, reporting $1.10 per share.
Additionally, its initiative of building smaller stores closer to customers was instrumental in offsetting higher costs and increasing revenue. This enabled the shoppers to visit Wal-Mart for every small requirement.
Future Looks Interesting
Wal-Mart has been playing it smart by being dynamic. Its decision of adapting to the changing preferences such as moving to less costly stores and providing reasonable prices, at such tough circumstances, have fared well.
The company looks forward to the upcoming spring season, which should allow customers to move out of their homes. It is busy preparing for this period by having new products on its shelves, and marketing itself well. In fact, its main area of focus is the price which it believes will be instrumental to its success.
Even demand is expected to be on the rise, especially because of Back to school season. Also, its recently launched layaway program has been attractive to customers. Moreover, snowstorms made life even more difficult for many lower income group people. Hence, these customers will definitely turn to cheaper options such as retailers which offer lower prices.
In Summation
Wal-Mart has been very active, formulating strategies for every problem that comes its way. Its Everyday Low Prices and increased expansion into busy markets have been the strengths of the company, taking it to new highs. With its new product assortments and the spring season coming up, Wal-Mart seems to be setting new records. This company is worth a bet as it continues to shine in the toughest conditions.
