DANVERS, Mass. — Wal-Mart’s early-bird deals on electronics lured Mary Ann and Rick Boucher to the store here at dawn — three weeks before the holiday shopping season kickoff.
The parents of five spent in excess of $1,000 — about $300 more than anticipated. They picked up two Acer laptops for $348 each, as planned, and made impulse purchases of an early-bird special DVD player as well as a small plasma television, two pairs of Levi’s Signature jeans for Mary Ann and a sack of Ol’ Roy dog food.
“I follow the deals,” Mary Ann Boucher said. “I’ll be watching [Wal-Mart specials] very closely to see what else we can get here.”
The Bouchers’ response is just what Wal-Mart Stores Inc. has in mind for holiday ’07. The $345 billion retailer said it will have similar specials, unveiled on its Web site 24 hours in advance, before Black Friday, the day after Thanksgiving.
The world’s largest retailer is trying to translate these early moves into a robust holiday season. The challenge is formidable. Wal-Mart same-store sales in October gained 0.4 percent, less than the 1.1 percent boost projected by analysts. And the comps increases at Wal-Mart’s stores division have been shrinking each year since December 2003. December comps were up 2.8 percent in 2004, 2.4 percent in 2005 and 1.3 percent last year. Wal-Mart has said a portion of its holiday sales have moved to January because of the growing popularity of gift cards.
The retailer needs Santa to deliver a big win to prove it is turning around the $226 billion U.S. division.
Many factors will influence the outcome. Wal-Mart’s core customer is hurting economically because of high fuel costs, the housing slowdown and tighter credit. Although the retailer is still vulnerable in apparel, Wal-Mart’s unequivocal return to a price-first strategy — what it does best — has been lauded by analysts. The new ad slogan, “Save More Money. Live Better,” and the supporting holiday campaign, “The more you save, the more Christmas you can give,” is positioned to reassure consumers they can fill the gas tank as well as the space under the Christmas tree.
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“Wal-Mart’s domestic turnaround strategy finally seems to make sense,” Goldman Sachs retail analyst Adrianne Shapira wrote after the company’s analyst conference in October. “Reasserting price leadership through rollbacks and an increased focus on basic items within the home and apparel categories harks back to Wal-Mart’s traditional productivity loop strategy…something that could lead to improving domestic fundamentals over the next 12 to 24 months.”
On a brisk Friday this month, about 20 customers queued up for the early-bird discounts in the electronics department at the Wal-Mart store here, 20 miles northwest of Boston, and then fanned out through the store.
“Wal-Mart is gaining mind share with earlier promotions versus last year — a positive for a highly promotional holiday season,” wrote Citigroup retail analyst Deborah Weinswig, who picked Wal-Mart and Saks Fifth Avenue to outperform rivals.
Wal-Mart began several rounds of holiday price cuts and rollbacks, starting with toys in October and proceeding to 15,000 other items, about 20 percent more than last year.
Many of the markdowns, such as $5 Hanes fleece sweatshirts, were identical to deals Wal-Mart offered three and four years ago. The national Christmas ads, featuring a woman bragging about giving a DVD player to her husband, began running the week of Oct. 29.
“Wal-Mart is very concerned about their share of market,” said Michael Appel, managing director of consultancy Quest Turnaround Advisors. “With the issues their customers are facing — resets of mortgages, rise in gas and heating oil costs — Wal-Mart knows there’s a lot less disposable income out there. They’ve come out swinging to get as much as they can, as fast as possible.”
To succeed, Wal-Mart needs to bring in holiday shoppers early and often. The U.S. division has seen sales slow as customers stretched the intervals between shopping trips in order to save on gas. The retailer also has been outmaneuvered in fashion and home decor by most competitors.
At the analysts’ meeting, Wal-Mart disclosed apparel same-store sales were down 7.4 percent for the three months July through September, compared with increases at J.C. Penney Co. Inc., 1.9 percent, and Kohl’s Corp., 1.3 percent. By scooping up shoppers’ dollars early, Wal-Mart may be less affected by the superior merchandising operations in apparel and home decor of rivals such as Target Corp., Penney’s and Kohl’s. President and chief executive officer H. Lee Scott told analysts the effort put into planning Christmas had reached a new level of intensity.
“We have spent more money and more effort on Christmas than ever before,” Scott said. “They are going to like the Christmas shops and they are going to love the prices.”
However, Wal-Mart remains exposed in apparel this holiday. With slow sales across most retailers in September and October because of warm weather and economic unease, there is extra merchandise, said professor Stephen J. Hoch, director of the Jay H. Baker Retailing Initiative at the University of Pennsylvania’s Wharton School of Business.
Wal-Mart’s leaner inventory and dramatically lowered prices will not shield it from sluggish sales if mall and midtier retailers mark their branded merchandise way down to clear it. Consumers would likely pay more for a branded bargain than buy Wal-Mart’s private label goods at full price, Hoch said.
“Apparel is clogged up and the pain will be shared by all,” he said. “Because even if Wal-Mart’s not sitting on old goods, someone else is.”
Aside from these factors, Wal-Mart’s apparel looks more focused than in the past 18 months.
The retailer has clipped risky fashion from many U.S. stores, including the unit in Danvers, which used to stock Metro 7, the trendy contemporary label yanked from hundreds of stores in late 2006 and early 2007 after being expanded beyond its customer base.
Wal-Mart isn’t giving up entirely, however. Walmart.com had a concise selection of clearly presented trends, such as a tunic top with jeweled necklines ($19.88) and sweater dress ($29.88) under its new z.b.d. label, priced at 50 percent to 100 percent higher, on average.
But in stores that service a core, low- and middle-income shopper, Wal-Mart has simplified apparel’s pricing structure and assortment.
Dottie Mattison, senior vice president and general merchandise manager of apparel, articulated the direction at the analyst conference: “Wal-Mart is about price leadership,” she said. “Helping our customer take care of the family, exerting our scale…to deliver key items for the family, at $10 and less.”
A year ago, as the company dabbled in $22 George sweaters, low price points seemed increasingly scarce. That turned out to be a major gaffe since Wal-Mart does more than half of its apparel sales at $10 or less, Mattison said.
At the Danvers store, the shift in strategy was palpable. There were fewer coordinating head-to-toe looks and more individual items, such as hoodies or Henley tops that have high volume potential.
Overall, there was a greater focus on tops, which are easier to source for less than $10 retail, and little fashion denim. Styles across all brands were less than $10 — including a White Stag quilted microfiber vest with fleece lining, $8.88, that showed a surprising level of quality and likely would have been $15 or more last year.
Faded Glory had $9 ribbed turtleneck sweaters, Hanes had half-zip fleece tops at $9 and No Bo had cropped hoodies in a range of appealing prints for $7. Screen-printed T-shirts were $6.88.
Gone from rack tops were signs that showed lifestyle fashion images and hang tags that gave shoppers tips about how to put together outfits. No overt holiday styles, like Christmas sweaters and glittery tops, were stocked yet, which may have represented a lost opportunity.
“I’ll buy apparel if something grabs me as I walk by,” said shopper Tara Rufo, a twentysomething with a pierced lip and rockabilly style.
She bought one of the early-bird laptops and an HP combo printer-scanner for $50, and was off to check out car stereos. Nothing in apparel had tempted her.
“We know that the first place a consumer starts cutting when they are forced to make trade-offs is fashion and accessories,” said Candace Corlett, principal of WSL Strategic Retail. “We all have closet inventory that we can shop out of.”
WSL’s “How America Shops,” a quarterly survey of 1,500 consumers, has shown almost 50 percent of Wal-Mart shoppers “being very candid about the fact that they have had to cut back spending when they shop because they have to pay for their gas,” Corlett said.
Wal-Mart’s ad campaign suggestion that shoppers won’t have to make trade-offs and can still give lots of presents while spending less will likely resonate with shoppers. But Corlett said the retailer still lacks the brands teens covet. She said Wal-Mart remains weak in apparel presentation.
“The Metro 7 styling was OK, but the stuff would be horribly wrinkled,” Corlett said. “Or you’d have half a rack sell and something totally unrelated stuck on the rack with it.”
Britt Beemer, founder of America’s Research Group, which also tracks consumer shopping behaviors, said the remodeled apparel departments have a Target-like openness and are easier to shop, but “the customer is still not seeing what they like on the racks.”
Wal-Mart still “needs to come up with what Plan B is in apparel because Plan A is not working,” he said. “The remodeled department at least gives them a clean slate to start on.”