Reuters reports that Wal-Mart Stores (NYSE: WMT) saw its same-store sales grow by 3% in August -- almost double the 1.6% increase analysts were expecting. Reuters wrote that its "net sales in the month, ended August 29, rose 8.7 percent to $30.67 billion." Customers are rewarding Wal-Mart for sticking with its strategy of offering everyday low prices. As the middle class squeeze tightens its grip, investors are anticipating more such growth.
Tuesday night I taught a business school case written in the 1990s on Wal-Mart. The lesson of the case is that Wal-Mart understood that its customers wanted low prices and wide selection so it built a system for getting discounts from suppliers and keeping its shelves stocked with the items customers wanted to buy in each of its stores. But this system stopped working as well through much of the last seven years.
That's partially due to people borrowing against the rising value of their homes to shop at more upscale retailers. In the last year, however, more people have suffered as their incomes declined, the cost of food and fuel has hit record levels, and the value of their homes has plummeted. This middle-class squeeze pushes more and more people back to Wal-Mart since it provides the lowest prices on the items they need to keep their families functioning.
Investors have noticed -- driving its stock up 37% in the last year. As the economy worsens, Wal-Mart investors are likely to benefit -- its stock is up 1.1% in pre-market.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter
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Reader Comments (Page 1 of 1)
9-04-2008 @ 11:10AM
Roudy said...
Peter is right on about WMT knowing its customers wanted low prices as their "bottom line". This nonsense about the middle class shopping more at Target was a lot of wall street bs as it turns out.
RoudMan
9-04-2008 @ 12:01PM
Irish said...
I refuse to shop at Wal-mart - even if I'm down to my last penny. Americans have become cattle herded into Wal-mart because of the slumping economy forced upon on us by the way our government currently runs. Wal-mart is tight with the government, gets HUGE tax breaks, buys its products overseas made by poor foreigners, and turns around offering us "cheap goods" to buy. If Wal-mart really cared about America, it would buy American made products, stop setting up in foreign lands, exploiting cheap laborers, and pay Americans decent wages. Now Wal-mart is getting in on the banking, pharmacy, and grocery industries - slowly killing off other U.S. businesses. Wal-mart is the death to all low and middle-class Americans and like cattle, we continue to be herded into its doors. How pathetically naive we've become...but hey, where else is there to shop anymore?
9-04-2008 @ 3:17PM
adam hartung said...
Wal-Mart may look good short-term, but that's all. The stock has finally recovered to its value 5 years ago (with very little yield while you waited). It's still shy if its highs set 10 years ago. Now's the time to get out - while people are recession-dazed and price-oriented. Sell now before things recover and they go back to Target - and before other low-price companies, such as Aldi's, that are nipping at Wal-Mart's heels eat in to margins at Wal-Mart. Read more at http://www.ThePhoenixPrinciple.com