Wal-Mart Woes Bring Hope to Supermarkets

NOBODY SHEDS A TEAR when the class bully gets his comeuppance, and there were plenty of dry eyes in the supermarket industry this year as Wal-Mart Stores seemed to repeatedly stub its toes. The Bentonville, Ark.-based behemoth saw its sales momentum deteriorate throughout the year, which it attributed to causes ranging from the high cost of gasoline through the summer months to difficult comparisons

NOBODY SHEDS A TEAR when the class bully gets his comeuppance, and there were plenty of dry eyes in the supermarket industry this year as Wal-Mart Stores seemed to repeatedly stub its toes.

The Bentonville, Ark.-based behemoth saw its sales momentum deteriorate throughout the year, which it attributed to causes ranging from the high cost of gasoline through the summer months to difficult comparisons with 2005's post-hurricane spending in the fall.

The company also admitted to mishandling its rollout of a women's fashion line and said that an extensive remodeling effort was causing shoppers to spend less during the renovation process.

In October, the company said it planned to curb its U.S. expansion efforts slightly as it focuses on developing international markets and seeks to reduce cannibalization domestically. On the international front, the company pulled out of two markets in 2006 — South Korea and Germany — and some analysts have been questioning whether its Asda chain in the United Kingdom also should be abandoned.

Then in November, Wal-Mart posted negative comparable-store sales for the month, marking its worst performance in a decade and an unhappy start to the holiday season.

Unhappy for Wal-Mart, that is — traditional supermarket operators likely saw few of Wal-Mart's woes as bad news.

“The food retailing competitive environment is still intense, but the worst of Wal-Mart's competitive ‘crowding-out’ of the market, we believe, is over,” said Mark Husson, a New York-based analyst with HSBC Securities, London, after Wal-Mart issued its November sales report.

He cited the company's reported 12% gain in food sales, off the pace of previous gains in the 15% to 18% range.

Marketing miscues, which some analysts said include a decision to stray from its core low-price message with advertisements in Vogue magazine, also continued with this month's departure of one of the company's top marketing executives, Julie Roehm, and the dismissal of the company's newly hired ad agency, Draft FCB.

The retailer did enjoy its share of victories throughout the year, including in the legislatures of Chicago and Maryland, where laws that would have made it more costly to operate were struck down.

In Chicago, city aldermen passed a bill that would have created a higher pay scale for supercenters, while Maryland passed a law that called for large employers to meet a minimum threshold for health insurance benefits. Both measures were rejected.

In the latter case, a federal appeals court ruled that state regulation of company-provided health insurance was a violation of a federal statute known as ERISA, or the Employee Retirement Income Security Act. That ruling put into question the viability of about two dozen state bills proposing similar requirements.

Analysts pointed out that Wal-Mart still has plenty of room to deploy its massive supercenters along the West Coast, despite the opposition it has faced in many California markets. The chain also began making core inroads in more urban and suburban markets in other parts of the country, although analysts pointed out that such expansion is likely to be more costly.