retail watch

Walmart, Target Bite the Big One as Q1 Profits Look to Disappoint

Posted by Barry Silverstein on April 17, 2013 05:50 PM

In an on again-off again economy, spotty consumer spending can wreak havoc on retailers. 

The first quarter of 2013 proves the point. Jon Hatzius, chief economist for investment firm Goldman Sachs, said real consumer spending growth in Q1 was actually stronger than expected, but he cautions that "the March retail sales and the dip in consumer sentiment in early April suggest that consumption is entering the second quarter on a weak note," reports Business Insider. According to the monthly Consumer Reports Index, consumers' outlook has continued to decline since January. 

Retailers are already feeling the slowdown. Target just warned that its earnings in Q1 would fall below expectations when it reports earnings on May 22. The retailer claimed that spring merchandise sales have been hurt by cold weather and despite its highly-anticitpated launch in Canada, retail outlets in the country have so far been a drag on earnings. In fact, UBS Securities analyst Jason DeRise called Target's expansion in Canada "risky," citing the fact that the retail chain will have little time for testing its format.

Walmart's woes are also telling. US sales were dismal in February, prompting Jerry Murray, a Walmart VP, to write in an internal email made public by Bloomberg that "February (month-to-date) sales are a total disaster. The worst start to a month I have seen in my (about) seven years with the company." Murray resigned from Walmart earlier this month. Walmart's flat sales haven't been helped by it constantly cutting prices to the bone, even though it strong-arms suppliers to give the chain preferred pricing. In addition, Walmart has had issues keeping its stores stocked with merchandise.

With slumping sales a chronic problem, retailers have been exploring bold new initiatives. Walmart is locking horns with Amazon as both companies try to blend the in-store and online experience. One strategy being deployed by both companies is placing lockers in easily accessible locations so customers can pick up online orders. The two are also battling over mobile commerce, as Amazon pushes sales via its Kindle Fire and Walmart rolls out a mobile checkout system using the iPhone. The company is also reportedly exploring what it calls "crowd-sourced" delivery.

Walmart, long known as one of China's biggest customers, may be looking for another way to lift sales by appealing to its hardcore American shoppers with "Made Here" products. The company has pledged it will purchase "$50 billion more US made goods over the next decade." Duncan Mac Naughton, chief merchandising and marketing officer for Walmart US told Time, "This is a commitment around manufacturing and more economic renewal. We see it as a critical issue for us in the American economy." The company is still expanding outside US borders, though: In a possible response to Target's increased presence in Canada, Walmart is expanding its own Canadian operation.

Meanwhile, Target is making a big push into social media, in part relying on the "Inner Circle," social media activists the company wants to use to pitch its products. Target has recruited sixteen women who blogged or were active in using Instagram, Pinterest and Twitter to become "great influencers for Target," according to Eric Hausman, who is in charge of the program for Target.

Expect to see retailers implementing all sorts of innovations this year, from improving their stores to improving their online presence—all in an effort to insulate themselves against a soft sales outlook.

Comments

Alex Yampolsky United States says:

Walmart and Kmart, both "yesteryear" brands, need to concentrate their efforts on the customers' in-store experience, particularly sensory retail experience, along with improved customer service. Both brands have been lagging (and at times failing) in doing that. Walmart's "Made Here" initiative will likely become more of a temporary "remedy," without significant effect on the bottom line in the long term.

April 18, 2013 10:38 AM #

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