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May 18, 2010

On the money: Wal-Mart looks to revitalise US sales

Wal-Mart today (18 May) indicated that it has embarked on a number of initiatives designed to revise negative sales trends at its namesake US stores.

Wal-Mart today (18 May) indicated that it has embarked on a number of initiatives designed to revise negative sales trends at its namesake US stores.

Earlier today, the world’s largest retailer revealed that first-quarter, comparable-store sales at Wal-Mart US had failed to meet the company’s expectations, falling 1.4% during the period.

Speaking on a conference call with analysts, Eduardo Castro-Wright, CEO of Wal-Mart’s US business, suggested that sales to the company’s core shoppers had been hit by rising unemployment and gas prices, as well as increased competition on price from traditional retail channels.

“Rising gas prices and high unemployment levels continue to be the most pressing issues for our core customer. Gas prices are up 41% over this time last year,” he revealed.

The company has responded to falling traffic by upping its “rollback” price campaign, increasing advertising and re-examining its move to drastically cut SKUs.

“We launched a new rollback initiative with the objective of further increasing our price gaps. This particular rollback campaign will remain in place for at least the next 90 days, as we vigorously defend our price leadership position in the market. We are driving price leadership even more by increasing basket separation,” Castro-Wright insisted.

In order to communicate the group’s investment in pricing to consumers, Wal-Mart “significantly” increased its investment in marketing and in-store communications in the US during the quarter, he added.

The company also re-introduced 300 grocery items that it had previously cut in a bid to ensure customers do not shop elsewhere for “essential” brands.

The group has also escalated its store remodelling programme in a bid to halt the defection of middle-class consumers, who turned to Wal-Mart in the downturn but are increasingly flocking from the discount channel.

Castro-Wright revealed that Wal-Mart will remodel “more than” 550 stores in the US during the year.

With identical sales at stores remodelled last year up by 200 basis points, Castro-Wright said that, by the fourth quarter, the effort will provide “noticeable benefits” to the top line.

Nevertheless, Castro-Wright admitted that the company remained “cautious” about the second quarter.

“Gas prices and unemployment will continue to influence how our core customers shop with us. On the other hand, the recent changes we made to our assortment, food inflation, and our price leadership through rollbacks should result in a favourable reaction from customers,” he suggested.

The company predicted that US sales would decline by 1-2% during the period.

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