Walmart Profits Continue Amid Downturn

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Unlike other big retail chains, Walmart has continued to report hefty profits during the recession. If anything, it's becoming more competitive by lowering prices and remodeling stores to entice shoppers to spend more time.

STEVE INSKEEP, host:

Its MORNING EDITION from NPR News. Im Steve Inskeep.

RENEE MONTAGNE, host:

And Im Renee Montagne.

Heres what counts for great economic news these days: Consumer spending seems to have stayed at the same weak rate for three months in a row. Thats based on data from MasterCard. Its considered great news, because at least consumer spending didnt get worse.

INSKEEP: Of course, that picture varies from business to business, as were about to hear. Some small businesses are struggling to find customers. The worlds largest retailer appears to be doing fine. Thats where we start our story, with NPRs Wendy Kaufman.

WENDY KAUFMAN: Walmart, thriving in a recession? Thats hardly surprising, says Charles Fishman, a magazine editor who wrote a bestselling book about the retailer.

Mr. CHARLES FISHMAN (Author, Magazine Editor): Most of what Walmart sells is stuff that we have to buy somewhere. You do need to buy your dog food somewhere. You do need to buy your laundry detergent and your deodorant and your toothpaste somewhere. Those are the kinds of things that Walmart specializes in selling people over and over again, and Walmart is genuinely less expensive on most things than most places.

KAUFMAN: In the weak economy, consumers who had been Walmart shoppers continued to go there. New customers came, too, and the retailers customer base and its sales have grown at the expense of other retailers. This past quarter, Walmart made more than $3 billion.

One big question now facing the giant discount retailer is can it prosper even more once the economy rebounds? To do that, Walmart is making some changes.

Ms. MATTIE HAVENER(ph) (Manager, Walmart): As you can see when you come in the store, the bright colors now that are on the walls, the brick floors

KAUFMAN: Walmarts Mattie Havener.

Ms. HAVENER: And the biggest transitional change that you can see is the wider aisles.

KAUFMAN: With respect to the redesign, Walmart seems to be mimicking its rival, Target. A typical Walmart shopper spends on average just 21 minutes inside the store, according to the company. The retailer believes if theres less clutter and the shopping experience is more pleasant, consumers will stay longer and pick up things they hadnt planned to buy. And even if shoppers are rushed, theyll buy more if things are easier to find.

Walmart has slashed inventories to reduce its cost, but Havener - who oversees more than a dozen stores, including this one in Renton, Washington - says it also makes shopping easier.

Ms. HAVENER: Do we really need to carry 19 different tackle boxes, or do we need to carry six different tackle boxes? And were so really looking at clarity of offering.

KAUFMAN: When I asked frequent Walmart shopper Jeri Ann Mark(ph) if the store redesign was enticing her to buy more stuff, she answered absolutely, pointing to their overflowing basket. Her husband Gary chimed in.

Mr. GARY MARK: We came down primarily for two fish, two guppies, and my wife decided that we needed some Christmas things. So thats what were doing.

KAUFMAN: Its low prices that drive Walmart customers, old and new, into the store. And Walmart says this holiday season, it will cut prices even more. Indeed, yesterday, the company offered a tempered outlook for its fourth quarter, saying it expects sales to be about the same as last year, largely because of lower prices.

Because Walmart is so big, when it cuts prices, you can feel the impact throughout the economy. Why? Because as retail analyst Patty Edwards points out, Walmart has its tentacles in just about every segment of retail.

Ms. PATTY EDWARDS (Retail Analyst): Walmart competes against grocery stores. They compete against booksellers. They compete against Home Depot in the home area. They compete against department stores. You name it, they probably compete against them.

KAUFMAN: And if those stores want to keep their customers from going to Walmart, they may feel compelled to cut their prices, too. Consider, for example, the ongoing three-way price war for some hot new books. Walmart.com began selling them for $10. Amazon matched the price, so Walmart went to $9. Target countered at $8.99. Walmart went down another penny.

Stephen Hoch, a marketing professor at Wharton, says Walmart wasnt about to back down and conceded someone else had a lower price.

Professor STEPHEN HOCH (Marketing, Wharton School of Business): For years, they didnt really engage in this kind of preemptive low price behavior, but they have done it now on books, CDs, DVDs and also toys. I think they feel like it hurts them less than it hurts their competitors, so its probably a good thing for them to do.

KAUFMAN: Its not clear Walmart or anyone else can make much money on $9 books, but with retailers fighting for business, theyll try almost anything. Their hope is that shoppers who come in for the bargains will also buy more profitable items. If they dont, some retailers wont be in business too much longer.

Wendy Kaufman, NPR News, Seattle.

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