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A Tale of Two Retailers

January 9, 2009 By Leave a Comment

Walmart was not immune to the economic downturn as so many analysts had predicted. Walmart saw its same store sales increase by 1.7% last month. Good news, right? You would think so but Walmart disappointed by falling short of analyst expectations of a 2.8% increase in comps. The nation’s largest retailer saw its shares decline $4.16 yesterday to close at $51.38. Walmart(WMT) cut its earnings outlook by 10% for 2009 citing lower sales growth and tighter operating margins.

Conversely, Sears saw their same store sales decline 7.3%. Sounds bad, right? Wrong again. Sears announced a profit higher than analyst predictions. Sears Holdings shares rose $9.43 to close at $49.98 per share. While the numbers are not good at Sears Holdings, Sears and Kmart both seemed to benefit from layaway programs. As stated in my post on November 28th, I thought that layaway would help entice credit weary borrowers to purchase items that they otherwise would not have purchased this year.

The name of the game is expectations. I find it interesting that Walmart’s stock slumped even through sales increased and Sears stock increased despite a sales decline. I suppose the lesson to be learned is that it’s better to have Wall Street underestimate your earnings potential than to overestimate.

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Kmart Can’t Compete

January 5, 2009 By 6 Comments

I went shopping at Kmart for the first time in a long time. I remember going to Kmart when I was younger but I have only been to Kmart one time in the last four years. I am a bigger fan of Costco and prefer to shop there. I actually bought stock in Costco a few years ago because I like the business model, management team and employee friendly policies. So, why did I stop at Kmart? It was close to my house and the parking lot was empty so I figured I could get in and out quickly. I had also heard about the remodeled stores and was curious to see how different Kmart looked from my last visit.

Kmart looked about the same from the last time that I had been in the store. The interior was a little cleaner but the displays were still poorly organized. The store was dimly lit and there was a cold impersonal feel to it. Kmart is just not as appealing as a Target store. The customer service left a lot to be desired. The store was understaffed and the lines were very long. It took about 10 minutes to check out with less than 50 people in the whole store. The one good thing about Kmart are the prices. The prices at Kmart have gotten much more competitive with Walmart.

For years Kmart has struggled to compete against discount retailers Walmart, Costco and Target. It seems that Kmart can’t find the right niche to compete with the larger retailers. Walmart is the low cost leader in the industry and offers the cheapest prices. Costco prides itself on offering higher quality products and the best customer service. Target lands somewhere in between Costco and Walmart with its “cheap chic” strategy. Kmart’s place in retail is still undefined.

Does Kmart want to be the cheapest of the discount retailers? If so, Kmart will have to lower prices even cheaper then Walmart to attract customers. Or does Kmart want to compete against Target and Costco? If so, then Kmart will have to do a lot more than just slap some paint on the walls. Kmart must commit to better customer service and a wholesale remodeling.

It seems to me that Kmart has undertaken small steps to become more relevant in the retail industry. But without a major restructuring of its business model; Kmart’s days could be numbered.

Photo by XISMZERO

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Bright Spots in Retail this Holiday Season

November 28, 2008 By 2 Comments

I know we are in the midst of an economic recession and analysts are expecting a terrible holiday season for retailers. But I think that some retailers actually do okay. Will people shop as much as in years past? Obviously not. But I think the drop off will not be as bad as expected. The industries hardest hit by the downturn will be luxury items and electronics. Retailers such as Saks 5th Avenue and Nordstrom will find this holiday season particularly rough. Electronics retailers like Best Buy and Circuit City have so much inventory on hand that they are being forced to slash prices as never before. Even with the price cuts, big ticket items such as flat screen televisions, laptops and appliances will probably have the greatest drop off in purchases.

But I think there could be some bright spots in retail. My opinion is that lower prices and new programs will encourage some consumers to shop places they have shunned in the past. I think that retailers like Sears and Kmart may actually benefit this holiday season due to bold programs.  Struggling retailers Sears and Kmart have brought back layaway programs, extended business hours and are offering major price discounts. I think this a smart move. Any increase in sales no matter how small could be the difference between surviving this Christmas season and going out of business. Layaway programs may entice credit weary borrowers to purchase items that they otherwise would not have purchased this year.

Walmart, the nation’s number one retailer, will continue to thrive. Discount retailers like Family Dollar, 99 cents store and Dollar tree will continue to profit as consumers downsize. Clothing retailers like TJ Maxx and Burlington Coat Factory have also implemented layaway programs that should help sales. I also expect that niche items will perform well. Small ticket electronic items such cell phones, video games and mp3 players(ipods) will continue to sell. I think that video game demand will remain high as parents shop for children this holiday season. I expect Apple and Gamestop to do well despite low expectations.

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