Wal-Mart Tries New Initiatives & Old Ones to Revive Sales

In the past few quarters, Wal-Mart (NYSE:WMT) has struggled to lift its same-store sales despite new initiatives like Project Impact in 2009 intended to improve sales performance. Now Wal-Mart looks to relaunch Everyday Low Prices — though the retail giant has “relaunched” this already several times. This points to Wal-Mart’s difficulty in improving sales metrics due to a flagging economy and partly to consumers opting for dollar stores as a cheaper and more convenient alternative over big box stores like Walmart, Costco (NASDAQ:COST) and Target (NYSE:TGT). Customers are also shopping more online, which is another initiative Wal-Mart is trying.

We currently have a Trefis price estimate of near $73 for Wal-Mart’s stock, about 40% above the current market price.

We estimate that Wal-Mart’s revenue per square foot from its U.S. stores fell from $442 in 2008 to $425 currently. However, given its scaling power and price leadership, we expect Wal-Mart to bounce back in the coming years. While we estimate Wal-Mart’s revenue per square foot from U.S. stores will increase from $425.40 in 2011 to near $428 by the end of our forecast period, Trefis members indicate an increase from $430 to around $451 during the same period. The member estimates imply an upside of 5% to the Trefis price estimate for Wal-Mart’s stock.

Doubts on Success of New Initiatives, But Wal-Mart Persists

To address concerns like declining same-store sales and improving customer service, Wal-Mart undertook Project Impact, a major store remodeling initiative to improve store layouts and displays as well as focus on merchandise and better inventory management in 2009. The company announced plans  to remodel about 70% of its stores by 2012 as well as decrease costs and improve capital efficiency.

While this helps in molding positive perceptions in the customers’ minds, it hasn’t translated into an uptick in sales. This has prompted the company to go back to its proven strategy of Everyday Low Prices – again. ^[1]

Given the increasing competition from dollar stores, the company recently opened its first ‘Wal-Mart Express’ – a small store with average square footage of 15,000. Wal-Mart Express will have most of items that consumers need – milk, eggs, DVDs and pharmacy – and will be opened in cities where space is at a premium and in rural areas that can’t support a superstore. (See Wal-Mart Express: Wal-Mart’s Answer to Dollar Stores?)

Wal-Mart also launched an online grocery delivery service Walmart To Go that allows customers to purchase all major consumer goods online and have them delivered to their doorsteps at a $5 fee for a minimum purchase of $49. This move may help the company improve its sales as well as compete better with online retailer Amazon. (See Will Home Delivery be Next Growth Driver to Wal-Mart?)

Our complete analysis for Wal-Mart’s stock is here.

1. Walmart Re-Launches “Everyday Low Prices” Strategy. Again., Walmartwatch, April 12, 2011 [↩]