Bad news at Wal-Mart panicked some observers into worrying that the holiday shopping season will be a bust this year, dragging down the economy.
Wal-Mart said sales had not met expectations in the week ended on Black Friday -- the day after Thanksgiving and one of the year's biggest shopping days. (Source: CNN Money)
It turns out, however, that the holiday shopping season is booming almost everywhere except Wal-mart:
Near-record crowds turned out for the holiday shopping season's Thanksgiving weekend kickoff, bringing with them unexpectedly robust sales gains to many malls and retail chains across the country.
Except, surprisingly, at Wal-Mart Stores Inc. (Source: WSJ($))
This is an important story because Wal-Mart's vast size has made it a bellwhether for the retail segment and, indeed, for the market as a whole. We thus need an alternative version of the story in which Wal-mart's troubles actually indicate that the economy is doing well.
Here's one possibility that occurs to me: Whenever I've shopped at Wal-Mart, its product mix has always struck me as being decidedly down market, even as compared to other big box stores. (CostCo, for example, has a well-deserved reputation as, of all things, a fine wine merchant.) Wal-Mart products seem cheap both in price but also quality. During economic bad times, price may dominate consumer decisionmaking, which gave Wal-Mart a huge advantage. As the economy improves, however, perhaps consumers are willing to spend a few bucks more to get a more up-scale product than Wal-Mart offers.
Consumers may be getting tired of Wal-Mart's product selection, especially in hot holiday categories such as electronics, computers, apparel and athletic footwear.
"It's great if you attract lower income shoppers looking for low prices, but what if those shoppers who were really struggling between 2000 and 2003 now have jobs? They might be spending more and looking for different merchandise...maybe something Wal-Mart doesn't have," said Richard Hastings, retail analyst with Bernard Sands. ...
For example, Wal-Mart's challenge to the Sony plasma screen TV is a slightly lower-priced alternative priced at $4,935 from Tatung. "Wal-Mart doesn't have the type of brands that generate consumer excitement." (Source: CNN Money)
In contrast, returning to the CostCo example:
Costco sells more fine wine than anyone else, and doing so has become a key part of its strategy to lure more upscale shoppers. Someone who spots a deal on a 1993 Dom Perignon ($80) may also pick up a pair of Waterford goblets for $60. Exploiting such buying patterns has helped Costco to push its average checkout ticket to $109, compared with $60 to $80 at competing warehouse clubs, according to Bill Dreher, a senior retail analyst at W.R. Hambrecht. (Source: Time)
It'll be interesting to compare CostCo's sales figures to those of Wal-Mart for the holiday season as a whole. If CostCo out-performs Wal-Mart on key retail metrics like average checkout price, sales per square foot, gross margin return on inventory, or same store sales, we'll have pretty good evidence for the proposition that it is product mix that is proving to be Wal-Mart's problem.
An alternative hypothesis that bears consideration is the growth of on-line retailing. Certainly, the numbers so far for this holiday season suggest an uptick in the number of shoppers buying online:
Online shopping visits reached a record high this year on Thanksgiving Day, with the ensuing "Black Friday" coming in second, according to HitWise, an analysis firm that monitors Web traffic. Shopping and classifieds Web sites claimed 11.39 percent of all U.S. visits on Thanksgiving Day, breaking the 2003 high of 8.96 percent set on the holiday last year, according to Bill Tancer, vice president of research. (Source: Always on)
Let's not get carried away, however. The actual number of people shopping online remains quite small relative to those braving the crowds in bricks-and-mortar stores:
The day after Thanksgiving, as consumers trooped out in droves to traditional stores and malls to mark the start of holiday selling season, remained busy for online retailers. Nielsen//NetRatings reported 13.3 million people visited online stores on Friday, or 11 percent more than a year ago. EBay.com drew 5.4 million, followed by Amazon.com at 2.6 million and Walmart.com at 1.4 million. (Source: Always on)
The number of folks who braved the crowds to go the mall is ten times greater:
The National Retail Federation (NRF) reported a blockbuster weekend, with 133 million shoppers flooding stores hunting for popular electronics, clothing and music. (Source: E- commerce)
So don't go running out to buy tech stocks just yet. Indeed, the advantage of bricks-and-mortar stores may be even more pronounced than the raw figures suggest. At least some of the 13 million on-line shoppers may not have bought anything; instead, they may just have been using the Internet as a research tool:
"Even diehard holiday shoppers that weather the Black Friday crowds at sunrise know to research the Web for product selection and price comparisons before heading out to the mall," Ken Cassar, director of client analytics, Nielsen//NetRatings, said. (Source: E-commerce)
In sum, my guess is that Wal-mart's woes are unique to it rather than, as in the past, suggesting a systemic problem with the economy. I'd also guess that online e-commerce has a ways to go before it can be invoked to explain any decline in retail sales.
Update: Sean Hackbarth has an alternate theory.
