2008 Woodie Awards
The New Wal-Mart
Kelsey Field
Issue date: 10/21/05 Section: Life & Times
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Wal-Mart, in an attempt to boost a declining growth rate, has chosen to change its strategy by focusing on a new type of shopper: the upper class buyer.
No longer will the Wal-Mart stores appear like large warehouses to the consumers, as the company transitions and prepares to rival against businesses such as Target, by incorporating the same marketing strategies in order to attract higher income shoppers.
However, some economists warn against the change. If it proves to be successful, Wal-Mart will not only rekindle growth, but also revolutionize retailing again. If it fails, Wal-Mart will devastate its competitive advantage, which has fueled a 15 percent a year earnings growth over the past decade.
Wal-Mart is running on a 50 percent probability that their renovation will work. Despite Wal-Mart's high growth rate of 11.3 percent in 2004, it has shown a drop from the annual sales growth of 17.5 percent from 1998-2000, 70 percent greater than the projected sales jump of 10.3 percent.
As a result of the declining growth rate, investors have steadily been cutting the price-to-earnings ratio they are willing to pay because they lack the confidence that was once held in the booming business.
The skepticism shown through the stock market is also reflected in the posted 17.2 percent loss in 2005. For the past five years it resulted in a share return of 0, which is a shocking turn around from the 1995-2000 period, where stockholders saw a 295 percent return.
Wal-Mart, when making the decision to completely alter its business strategy, had to consider the roots of why the decline in the stock market.
For the second quarter, Wal-Mart has reported its smallest quarterly earnings gain in four years, with the U.S. division missing its sales target for the second quarter in a row.
However, the roots to Wal-Mart's losses run deeper than stock holder uncertainty. Wal-Mart says that "higher oil prices means less buying by lower income customers. Those customers, who have less discretionary income to start with, disproportionately cut their spending when prices climb at the gas pump." In order to entice a higher income consumer, Wal-Mart has begun an aggressive advertising campaign that parades their improving "fashionability" and higher end merchandise.
No longer will the Wal-Mart stores appear like large warehouses to the consumers, as the company transitions and prepares to rival against businesses such as Target, by incorporating the same marketing strategies in order to attract higher income shoppers.
However, some economists warn against the change. If it proves to be successful, Wal-Mart will not only rekindle growth, but also revolutionize retailing again. If it fails, Wal-Mart will devastate its competitive advantage, which has fueled a 15 percent a year earnings growth over the past decade.
Wal-Mart is running on a 50 percent probability that their renovation will work. Despite Wal-Mart's high growth rate of 11.3 percent in 2004, it has shown a drop from the annual sales growth of 17.5 percent from 1998-2000, 70 percent greater than the projected sales jump of 10.3 percent.
As a result of the declining growth rate, investors have steadily been cutting the price-to-earnings ratio they are willing to pay because they lack the confidence that was once held in the booming business.
The skepticism shown through the stock market is also reflected in the posted 17.2 percent loss in 2005. For the past five years it resulted in a share return of 0, which is a shocking turn around from the 1995-2000 period, where stockholders saw a 295 percent return.
Wal-Mart, when making the decision to completely alter its business strategy, had to consider the roots of why the decline in the stock market.
For the second quarter, Wal-Mart has reported its smallest quarterly earnings gain in four years, with the U.S. division missing its sales target for the second quarter in a row.
However, the roots to Wal-Mart's losses run deeper than stock holder uncertainty. Wal-Mart says that "higher oil prices means less buying by lower income customers. Those customers, who have less discretionary income to start with, disproportionately cut their spending when prices climb at the gas pump." In order to entice a higher income consumer, Wal-Mart has begun an aggressive advertising campaign that parades their improving "fashionability" and higher end merchandise.