Wal-Mart, humbled king of retail, plots rebound

Dollar stores beckon, their small size ideal for quick shopping. Target offers 5 percent off if you pay with its store-branded card. Costco tempts with high-end, brand-name food and designer clothes at competitive prices.

Bernadette Clark used to visit Wal-Mart here twice a week. Three years ago, Wal-Mart ruled for convenience, selection and price. Wal-Mart is not in danger of ceding its place atop the retail world. Revenue rose by an average of nearly 1.7 percent at Target, 8 percent at Costco and 5.9 percent at Family Dollar.

To fight back, Wal-Mart is again emphasizing low prices and adding back thousands of products it had culled in an overzealous bid to clean up stores. Unlike most stores, Wal-Mart thrived when the Great Recession struck in late 2007. Affluent shoppers became price conscious and discovered Wal-Mart's prices were hard to beat.

Shoppers spent 13 percent more on basics at Wal-Mart that year.

Shoppers also liked that Wal-Mart's stores looked neater. Wal-Mart widened aisles, eliminated clutter, improved lighting and lowered shelves.

Family Dollar and Dollar General posed little threat. So Wal-Mart had a competitive edge. Around that time, Wal-Mart's renovation started to backfire. Wal-Mart got rid of 20 percent of its groceries, about 10,000 items in that area of the store, says Burt Flickinger, who runs the consulting firm Strategy Resource Group.

Shoppers began complaining that Wal-Mart no longer had items they wanted, even some of their favorite brands. Wal-Mart's next mistake was pricing. Wal-Mart was less aggressive about being the low-price leader. Wal-Mart advertised dramatic price cuts on 22 items, including a 40-ounce bottle of Heinz ketchup for $1, less than half price.

Wal-Mart's mistakes have had a lasting sting.

Revenue at Wal-Mart stores open at least a year, a key measurement of any retailer's health, has fallen for six straight quarters. While Wal-Mart has lost shoppers, competitors have gained.

• Dollar stores are winning over customers with convenience. Their parking lots and stores are less than a tenth the size of those at most Wal-Marts. Combined, Family Dollar and Dollar General took in about $20 billion in the last fiscal year, just 5 percent of Wal-Mart's $408 billion in revenue. But together they have thousands more stores than Wal-Mart, and their revenue is growing at an enviable rate.

"The number of openings of dollar stores, and just the sheer density and convenience has been a (competitive) factor" for Wal-Mart, Duke says. • Target scored a win against Wal-Mart with its 5 percent discount for purchases paid with a Target credit or debit card. Wal-Mart won't match the discount, even though it's losing customers like Tomacinia Carter. "That is hammering Wal-Mart," says Craig Johnson, who runs the consulting firm Customer Growth Partners.

Duke says loyalty and credit card programs are expensive to run and Wal-Mart wants to give low prices to all shoppers.

Target is Wal-Mart's largest rival, though its revenue of $65 billion for its last fiscal year was only one-sixth of Wal-Mart's. Target has maintained its reputation for stylish clothes at low prices. • Wholesale clubs, particularly Costco, weathered the recession and are picking up Wal-Mart customers, too. Wal-Mart hopes the holiday season marked the end of the declining revenue. Analysts surveyed by Thomson Reuters expect Wal-Mart to report a 0.9 percent increase in revenue for the November through January quarter. Wal-Mart will release its quarterly and year-end results Feb. 22.

Wal-Mart expects other changes to fuel growth. • Going beyond the return to "everyday low prices." Wal-Mart upped the ante in the fall by pledging to match competitors' prices. The company is also pressing its suppliers to give it the lowest prices on goods including clothes, food and cosmetics, says Cameron Smith, a recruiter for Wal-Mart vendors.

• Restocking thousands of grocery items. • Opening more smaller stores. Some will be less than 30,000 square feet, about a sixth of the size of the average Wal-Mart store. Duke says Wal-Mart has its eye on New York, too, where Wal-Mart calculates that city dwellers using credit cards spent $165 million at Wal-Marts in the suburbs last year.

And Wal-Mart plans to tap markets where no one else goes. Wal-Mart still faces obstacles. Rising gas prices and high unemployment hurt Wal-Mart's working-class customers.

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