Over the last several years, Wal-Mart (WMT) turned away from its strength of providing everyday low prices on items ranging from drugs to lawn mowers. It tried to move upscale with fashion lines and fancy groceries.
The market rejected the new plan. Wal-Mart began to have to fight a two-front war. One was with shareholders that did not like its direction. The other was with local governments and merchants who did not like the big retailer putting mom and pop out of work.
Wal-Mart has done better recently. As the economy has worsened, consumers are coming back to its stores to get bargains. They can’t afford Whole Foods and Tiffany’s now.
Wal-Mart has announced new plans to take advantage of its rising fortunes. It plans to pick up market share in the recession by building fewer stores, but picking more desirable locations. It will also put smaller stores in areas which may be under-served but do not need an outlet the size of an aircraft carrier.
Wal-Mart can also keep prices low or even drive them lower. It has the advantage of being the world’s largest buyer of most retail goods. Getting better prices out of China may be easier now that its economy is beginning to cool.
What Wal-Mart is not saying is that it will pick up share using its pricing leverage and its balance sheet. It can wait out weaker retailers like Circuit City (CC) and simply let them fail. Many of those customers will be moving their business to the Wal-Mart consumer electronics section.
As for all those little mom and pop stores, they can’t get credit and their customer bases are being eaten by the recession. They might as well close now and give out the address of the closest Wal-Mart super store.
Douglas A. McIntyre
Top Gaining Stocks
Top Losing Stocks