VIEWPOINT: Apparel continues to drag on Wal-Mart's US unit
Wal-Mart says its apparel turnaround efforts remain a "work in progress"
Not only does Wal-Mart Stores' US namesake unit continue to be a drag on its bottom line, but its apparel business continues to weigh particularly heavily on its performance here as well, the world's largest retailer admitted this week.
The discounter on Tuesday (17 May) recorded a 1.1% drop in first quarter same-store sales - the eighth quarter in a row in which this key metric has fallen - but also confessed that apparel "had a mid single-digit negative comp," with the greatest weakness in kids, ladies and shoes.
"Apparel's a work in progress, but one that has a tremendous amount of attention throughout the organisation," Bill Simon, president and CEO of Wal-Mart's US division, said on a call with investors.
"Where we've brought back assortment, like ladies' plus, sales and trends are improving. In fact, we posted a positive comp for the quarter in ladies' plus."
But, he added, "we're simply not converting enough of our grocery customers to shop apparel, and we've been working hard on strategies to improve this important area of the store." He also notes that ongoing moves to reintroduce some items that had been removed from the line-up "will continue to take time."
Amongst measures to try to turn around its apparel sales the retail giant has been focusing on a broader assortment of more basic products like socks, underwear and T-shirts that meet the needs of customers that include the poorest American consumers, who remain battered by ongoing economic pressures.
But for a business that focuses on everyday low prices and whose shoppers continue to be on a tight budget, rising labour costs and higher cotton prices are another big worry in its apparel category.
"We're investing in price as we recognise that customers have seen higher prices across the industry for cotton-related apparel," Simon confirms.
Other headwinds hurting shopper spending include rising gas prices, high unemployment and increasing inflation which are "the most important issues facing our customers today," Simon says.
"The paycheck cycle remains pronounced. During the quarter, we saw continued pressure from ongoing macroeconomic conditions, as customers continued to trade down to opening price points and some private-label products."
Wal-Mart has already tried steep price cuts in an attempt to boost its fortunes, but while these "deep rollbacks drove our unit sales of some items, [they] did not deliver the intended traffic and basket lift we were looking for. We will not repeat these programmes this year," Simon explains.
That said, the retailer's international operations continue to put in a robust performance, contributing to an overall 3% rise in profits to $3.3bn in the first quarter of the year. Consolidated net sales rose 4.4% to $103.4bn, while international sales were up 11.5% to almost $28bn
And despite fears that significant changes in gas prices and inflation will dent its performance even further, Wal-Mart forecasts US comparable-store sales will range from a fall of 1% to an increase of 1% during the current quarter.
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