RetailSails

Walmart is the ultimate bell-weather of the U.S. consumer economy, selling merchandise in just about every product category except cars between its namesake and Sam’s Club stores and representing nearly 10% of all U.S. retail (excluding auto & restaurant) sales.

The company has struggled of late, dealing with increased competition from online merchants such as Amazon.com, dollar and discount stores threatening their “everyday low-price” position, and especially with a low-income consumer living paycheck-to-paycheck.

However, their latest earnings report suggests trends are slowly improving. Following 8 consecutive quarters of negative same-store sales (excluding fuel) in the U.S., Walmart said comparable sales were flat in Q2, up 0.8% including gas. Much of the strength can be attributed to growth at Sam’s Club, with saw same-store sales increase 9.6% (+5.0% ex fuel) in the quarter.

Walmart U.S. still posted its 9th straight quarter of comp declines (-0.9%), but it was the smallest decrease in 8 quarters and the company said sales trends improved in June and turned positive in July as both customer traffic and ticket gained as the quarter progressed.

CEO Mike Duke said “I’m encouraged by the sales improvements in our Walmart U.S. stores. Comps have improved sequentially month-to-month within the quarter. In fact, this was the best quarterly performance since the third quarter of fiscal 2010. The goal of the Walmart U.S. team remains positive comps by year end.”

One of the main challenges the company faces is many shoppers no longer view them as the low-price leader. Both Duke and Bill Simon, President & CEO of Walmart U.S., spent much of yesterday’s conference call discussing the hardships facing their core consumer and how they are working on regaining the throne as the “everyday low-price” king.

Here are some the things they discussed:

Mike Duke – “I’ve recently observed several consumer focus groups, and it’s clear that many consumers are still struggling. They’re trading down to stretch their budgets, buying a lower-priced brand of detergent, moving from branded canned goods to private label and purchasing half gallons of milk instead of gallons. That’s why we are laser-focused on investing in price to help our customers. There certainly are many reports on Walmart pricing and the fact is, that the gap has narrowed in some cases. We’re committed to widening the gap on price, and we have a specific plan and timetable to deliver EDLP to every customer.”

Bill Simon – “The economy remains challenging for our core customers. Customers are still consolidating trips due to higher year-over-year gas prices. The swings in sales due to paycheck cycles remain pronounced, and our stores must staff and stock for the volatility both up-and-down. We also have seen an increase in the number of customers relying on government assistance for food and necessities for their family.”

“While we saw an increase in grocery inflation of approximately 3.5% during the quarter, customers remain under continued pressure and are trading down to lower price points and smaller pack sizes, as well as opting out of discretionary purchases. As a result, we’re seeing minimal pass-through of inflation to sales.”

“Food inflation has replaced gasoline price as the most important household expense concern. In addition, more than 15% of Walmart moms in our monthly survey have experienced the loss of a household wage earner’s job in the last year. Almost 40% of these Walmart moms indicate they’re holding off or eliminating items they would normally buy, reinforcing the need for us to drive Every Day Low Price.”

“With the ongoing economic volatility, it’s important as ever to deliver on our one-stop shopping promise, a broad assortment of merchandise backed with Every Day Low Price.”

For all the dire reports out there, it’s worth noting that Walmart is still seen as the first place the majority of consumers will shop for both back-to-school supplies and clothing by a 2-1 margin.

Simon said “We are well positioned to gain sales and share for the important back-to-school season. We are expanding our offerings in important categories to regain customers, and we’re adding back items in key brands. We’re confident that the back half of the year will see ongoing improvement in apparel sales.”

The other major challenge the retail behemoth has faced is increased competition from online retailers, notably Amazon.com and their sales tax-free advantage. While Walmart and Sam’s Club combined grew e-commerce sales 17% last fiscal year to $4.095, which makes them the 6th largest online retailer in the U.S., the internet business still represent under 1% of total sales and they have struggled with multi-channel integration.

The company is hardly sitting on its hands though, having recently announced a shakeup in the e-commerce business, and Simon discussed several initiatives on the call to improve integration and efficiency:

“We’ve spoken often about multi-channel retailing, allowing customers to shop on their own terms. We’re now moving towards a strategy called continuous channel shopping, recognizing the continued integration of customers using web-based devices to shop our stores and to research and shop online as well.”

“In the second quarter, our global e-commerce team stepped-up its work on delivering a continuous shopping experience to customers from the store to the Web to their mobile devices. In mature markets, we’re investing in multi-channel initiatives by integrating our stores with online services. We completed the rollout of Pick Up Today in all Walmart U.S. stores and within the last month, we announced that VUDU, our movie streaming technology, is now available on Walmart.com, as well as through any iPad browser.”

The e-commerce sales figures are also very misleading, as noted by Simon’s comment that “Today, roughly 60% of walmart.com sales involve the stores through services such as Site to Store and Pick Up Today.”

Overall, it was a positive quarter for Walmart as top-line trends are improving and the company is tackling challenges head on, while still cognizant of the fact their core consumer continues to struggle in an uncertain economic environment. Here are some final thoughts from Bill Simon”

“We still remain concerned about the increased economic pressure on our customers and the uncertain impact it will have on their shopping behavior.”

“Based on the start of August sales, we’re confident that our plans are working, and we’ll see ongoing sales improvement. We expect comp sales for the 13-week period from July 30 through October 28 to be between minus 1% and plus 1%. Last year’s third quarter 13-week comp was negative 1.3%.”