Wal-Mart Heady on Holiday
November 8, 2004-- Home Textiles Today,
Even though Wal-Mart's core customers are “still in a hole” — not yet seeing any traction from an improving economy — the outlook for the holiday season looks better than last year, said Jay Fitzsimmons, Wal-Mart senior vice president of finance and treasurer.
Granted, he clarified, that may be the case only as stockpiles are substantially leaner than a year ago, which will likely lead to fewer markdowns and less downward pressure on margins and profits.
In a further assist to the fourth-quarter profit outlook, Fitzsimmons told investors at a Lehman Brothers retail field trip here, “We're seeing a relatively rational retail environment. There's no retailer trying to put themselves out of business by trying to beat Wal-Mart on price.”
Scoping out the competition for Christmas business, he added, “Kmart is not playing a price game at all. They're not investing at all in the customer, and they tend to be about 8 to 9 percent higher. We think that you won't see the aggressiveness at Toys “R” Us and Target. It will be competitive, but not as competitive as it's been in recent years.”
Also pointing to a more profitable holiday quarter is a substantially lower — perhaps even too low — inventory position, he said. “Last year, we had too much inventory and hundreds of millions of dollars in markdowns.”
This year, “We're actually short of inventory. If we went back and wrote our orders, we'd write them more aggressively.”
But a big question mark, he acknowledged, is how long it will take the core Wal-Mart customer, who lives paycheck to paycheck, to see any benefits trickling down from an economy that's actually been improving since spring. Rising gas prices, he said, have taken a particularly hard toll on low-income Americans.
The reality, he told investors, is that “since April, the economy has continued to improve. But since April, their personal finances have continued to go down.”
While Wal-Mart is clearly the dominant force in American retailing, there's still more room to grow domestically, he noted. Just how dominant is Wal-Mart? It controls about 8 percent of all U.S. retail sales, Fitzsimmons said. Put another way, for roughly every $12 spent at retail in America for virtually any product, about $1 goes to Wal-Mart.