Wal-Mart's Costly Gamble
December 6, 2004,
For retail analysts, Wal-Mart's Black Friday fumble was both a surprise and a curiosity. But for Wal-Mart suppliers, the slack start to the season could spell the collapse of their own fourth-quarter profits — if the situation isn't righted quickly.
Wal-Mart — like several other retailers — also announced it would not launch into the season with heavy promotions, and that overall it planned to take a less promotional posture during the holidays. Its reasoning: the economy is recovering, and Wal-Mart pricing is already very aggressive.
As it turned out, Black Friday was a heavy shopping day, but the winners were those offering door-buster deals. Traffic slacked off on Saturday and slumped on Sunday. By the time it was all over, Wal-Mart announced that its comps for the month of November would be essentially flat — up 0.7 percent — as opposed to the expected gain of 2 percent to 4 percent. For a retailer that rang up $27.1 billion last November, that's a big drop.
It also puts a big hurt on Wal-Mart vendors. One veteran Wal-Mart supplier reports that a single item featured in Wal-Mart's Black Friday circular will do as much unit volume in the opening four days of the holiday season as it did in the previous four months — and that's without a price rollback attached. He estimated that Wal-Mart's shortfall has probably left individual vendors sitting on anywhere from $2 million to $5 million in unsold inventory.
That's not a happy way to wrap up the year. It's an even worse position to find oneself in with quota-free Jan. 1 less than a month away.
The silver lining here — to the extent that there is one — is that fact that consumers, it's true, actually do their heaviest shopping later in the season now. The big bulge is yet to come, and with Wal-Mart (and several other retailers) now moving ahead with earlier promotions in the wake of the opening weekend performance, it's possible that the shortfall could be covered.
The holiday season is always something of a scramble to the finish line. But it's a tougher run when the racers have to carry a load of excess inventory on their backs. Let's hope they manage to fling off most of it before they reach the end of the course.