Our Terms of Service and Privacy Policy have changed.

By continuing to use this site, you are agreeing to the new Privacy Policy and Terms of Service.

Is Wal-Mart recovery-proof?

The lousy economy helped the giant retailer. Will a recovery hurt?

EMAIL  |   PRINT  |   SHARE  |   RSS
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Joe Light, Money magazine staff writer

(Money Magazine) -- Throughout the recession, wealthier households "traded down" and started to shop at Wal-Mart (WMT, Fortune 500) for the first time. As a result, the world's largest retailer saw its market share in general merchandise rise as the economy went south.

Wal-Mart's stock jumped 20% in 2008, but this year its shares are down about 8%, as investors anticipate a recovery that could get shoppers -- especially the company's new upscale clientele -- thinking about more than everyday low prices.

Safe from scrooge

Holiday sales, which make up a third of the revenue at many retailers, are expected to drop 3.2% from last year's anemic levels, according to the National Retail Federation.

But while a lackluster shopping season could send pricier stores reeling, Wal-Mart enjoys a buffer: grocery sales -- staples that don't fluctuate much with the seasons. Food accounts for about half the discounter's overall sales.

Moreover, the consumer's quest for cheap gifts might actually boost Wal-Mart's wallet share. The company recently launched one of its earliest holiday campaigns ever -- before Halloween, much less Thanksgiving -- slashing prices on more than 100 toys to $10 apiece for Christmas.

Broadening its appeal

Shoppers tend to stay home when the economy is bad, but Wal-Mart officials said their foot traffic rose in this recession. About 17% of that new business came from new customers, a majority of whom earn more and spend 40% more per visit than typical Wal-Mart shoppers.

But as the economy heals, some of those customers might migrate back to their preferred stores. So Wal-Mart is remodeling its locations to appeal to them. The company also announced plans to start an eco-labeling program for store products to appeal to green-minded shoppers.

Plus, with unemployment still high, consumers are likely to be value-oriented for a while, says Morningstar analyst Joel Bloomer.

Lost in translation?

Wal-Mart already accounts for 10% of U.S. retail spending, minus autos and restaurant sales. So "long term, more of its growth will come from overseas," says Brad Hinton, a portfolio manager for Weitz Funds.

Foreign stores now make up a quarter of its square footage and sales, but only a fifth of operating income. Wal-Mart has struggled to adapt to local tastes. It exited South Korea after stocking stores with dry goods and electronics -- not the food and beverages that draw Korean shoppers to local discounters.

In Japan, Wal-Mart is only now expected to turn a profit -- after seven years of losses. Says Hinton: "It's not as simple as transplanting the U.S. playbook to the rest of the world."  To top of page

Send feedback to Money Magazine
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
Banned! 10 things you won't find in China China says it wants to open its economy more to the rest of the world, but Beijing keeps a tight grip on technology and access to media. These 10 items are still off limits. More
A morning at the AltSchool, an education startup that Silicon Valley is crazy about The AltSchool is a system of "micro schools" and an education software maker that has raised about $133 million from investors like Andreessen Horowitz and Mark Zuckerberg and Priscilla Chan's philanthropic fund. More
Coolest cars for $18,000 These are the best budget cars, according to the experts at Kelley Blue Book. More
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play