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Retail's Empty Shelves

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February 11, 2014 – Comments (0) | RELATED TICKERS: TGT , WMT , SHLD

Board: Value Hounds

Author: Goofyhoofy

I did not know that Walmart is the #1 grocer, but I am not surprised as they are national. Most grocery chains are regional at best.
Walmart has tried an upscale strategy but that failed. Low prices is what works for them as it always has. As with every retailer, the good prices are only on some items. You have to be able to spot them to do well shopping there.
I still see Walmart as effective merchandisers using a variety of methods to get people into their stores. Groceries, generic drugs, as well as end of aisle specials and ads.
The new Home Depot seems to be doing better. They have learned to compete with internet buyers by matching prices for packaged items easily shipped.


You have a historic, but incomplete view of things, I think. Home Depot didn't "learn to compete", they went back to doing what they were doing before Nardelli got there. Hiring competent people in the aisles who could help with projects, not untrained but cheap shelf fillers who couldn't. (The kid moving boxes costs $20k, where the former plumber cost $50k. But the plumber could answer questions and sell product.)

They increased head count. They stopped being so chinsie with inventory that people couldn't find what they needed because it was "out of stock." (As I say, you can save yourself rich for a while reducing inventory costs, but at some point your customers notice that they have to go to Lowe's anyway, and they start going there first.)

Your K-Mart info is pretty stretched, too. They cost reduced and cheapened the stores first - and for years - and when it finally became clear that they had damaged the brand they doubled down and went on the "super cost reduction" strategy against WalMart, which imploded because they couldn't match the prices and the stores got even worse. That's why nobody goes there anymore; they got worse and then much worse.

Likewise, Walmart has been on a cost reduction strategy for a few years now - and the results are obvious to those of us who walk the stores. Messy, stockouts, and grumbling employees. Why? They've reduced their workforce by 20,000, even as they have added almost 500 stores. That means each store is running with fewer and fewer people - a viable strategy to a point, but I submit the point has been passed. (Sam Clubs just announced a layoff of another 2,300.)

Now I have nothing against cost reductions, or even layoffs - so long as the job can still be done. Based on what I've seen - very Lynchian up close and personal - they've taken it too far, and they're doubling down.

(I've said before, I think Sam would be appalled to see the condition of the stores, and the attitude of the employees. He was all about low costs, too, but not at the expense of running the business.)

As I say I'm not touting Target, but I don't see the "Oh we've made a mistake, we're changing strategy" from Bentonville, either. Indeed, I see more of the same, which gives me pause about Walmart. Yes, they could reverse course, but that will take some investment and some time, and - like Home Depot - that will cost something in the short term, which will affect the share price. (Comps will improve, but profits will suffer.)

I see dangers for the Dollar Stores, too, but I think they have found a niche in "location" as much as price. They are easier to site, easier to buildout, and cheap to run. I have to pass at least four of them on the way to my nearest Walmart. If I'm just going for a can of beans or a stack of paper plates, why drive all that way? To me, they are like the old "general store"; limited selection but convenient. And with the expansion of those chains, they (at last) have the major manufacturers working for them - creating special sizes (to keep the price down) and unique products to keep the shelves full. Back in the day they had to source from all over; their "backroom" supply chain has become increasingly efficient.

Anyway, no doom and gloom here, only an observation that Walmart is following a short-term mentality strategy, and I think it will come back to bite them.

Walmart Faces the Cost of Cost-Cutting: Empty Shelves
http://www.businessweek.com/articles/2013-03-28/walmart-face...

Sam's Club laying off 2% of workers
http://money.cnn.com/2014/01/24/news/sams-club-layoff/

They haven't learned. 

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