Is Wal-Mart In Even More Trouble Than We Thought?
A sign of the apocalypse? Wal-Mart is amping up its marketing machine, but it may only signify justhow desperate theretailerreally is.
We knew Wal-Mart was feeling the ill-effects of its decision to increase the minimum starting wage of some 500,000 workers because more senior employees who didn't get a raise were reportedly disgruntled while also cutting employee hours and quietly scaling back the number of stores open 24 hours. At first it was just a few dozen stores, but the New York Post reports the number of stores closing for at least a few hours each night has grown to over 300.
Of course, Wal-Mart says it has nothing to do with the wage hikes granted in April, which will cost the retailer approximately $1 billion. Rather it was all part of the company's cost-containment program all along.
Risk of increasing costs without productivity gainsThe world's biggest retailer is in the midst of a turnaround that's actually seen it post back-to-back-to-back increases in same store sales, but the effort is starting to stall. It missed analyst expectations on earnings for the second quarter and then lowered its guidance for the full fiscal year to a level that was also beneath analyst forecasts.
Just how bad is it getting for Wal-Mart? It might have given investors a glimpse of its distress when it announced it was moving up by two weeks the start of its Christmas marketing program. The retailer kicked off the holiday season last week by launching its layaway program for customers and lowering the threshold for purchases that will qualify. You can now stow gifts as cheap as $10 on layaway (down from $15) so long as the total basket is at least $50.
And to give consumers an extra incentive to start Christmas shopping early, it published a list of toys kids wanted to see under the tree this year as chosen by the kids themselves.
It's never too early to start Christmas shopping? Wal-Mart may quickly find out that for some consumer, yes it is.
Two years ago Sears Holdings was roundly criticized for the kind of "holiday creep" that saw it begin pushing the Christmas holiday early, just before the start of kids going back to school. Ad Age noted at the time that the kickoff, 105 days before Christmas, was the earliest ever a retailer had tried to push the envelope and test the patience of consumers with holiday marketing.
But Wal-Mart is topping that this year, going a full 119 days before Christmas. It's the clearest sign yet of desperation being exhibited by the retailer as it tries to gain the upper hand on rivals.
Not much cheer for the holidaysIn some circles it's being touted as a sign that Wal-Mart is committed to win the holiday shopping season, but it really amounts to only a brief respite from the larger war as it encourages the competition to ramp up their own marketing.
Wal-Mart may also find it's of negligible benefit anyway, as sales are only pulled forward instead of growing the total amount. But even that might not be enough.
Recently Kohl's blamed a late start to the back-to-school shopping season for its own disappointing earnings report, but it wasn't really a calendar shift as it tried to say as much as customers stocking up all year long from online retail sources. That allowed customers to put off to the last minute any fill-in shopping that needed to be done.
The online arena could prove troublesome to Wal-Mart as well because despite the billions of dollars it pumped into its own e-commerce efforts last year, it still came up short because of the strength shown by Amazon.com, which continues to suck the oxygen out of the space for everyone else.
When every day is Christmas, there's nothing particularly special about the offers made and retailers find they've only pulled sales forward rather than creating new demand. Photo: Mike Mozart.
The Grinch that stole the holiday seasonWal-Mart also found that it enjoyed no sales bump from its early start last year, saw little improvement in profit margins, and didn't gain any headway in e-commerce representing a larger portion of total sales. Yet all that effort came at a great cost: It had put more cashiers at the checkout to reduce long wait times and engaged in more discounting to lure customers in.
This year its costs are going to be even higher from the minimum wage increase, and while that will supposedly result in better customer service, as noted above, we're seeing the move send mixed signals to its workforce.
And by starting the Christmas promotions when summer is still in full swing, Wal-Mart risks angering the very customers it's trying to win over, but who quickly become fatigued by hearing about Santa and sleigh bells when they're still trying to catch a tan on the beach.
In reality, it reeks of a company in distress and knows it. It is throwing all the deck chairs overboard in an attempt to remain afloat. Consumers may benefit from the early push, but only if they turn their attention to a holiday that is still some four months away. Investors, though, should gird themselves for another disappointing holiday that doesn't move the ball very far up the field even though Wal-Mart is moving the chains to gain a benefit.
The article Is Wal-Mart In Even More Trouble Than We Thought? originally appeared on Fool.com.
Rich Duprey has no position in any stocks mentioned. The Motley Fool owns and recommends Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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