The long road back for EDLP
It’s looking like Walmart could be in for an eighth consecutive quarter of declining same-store sales, judging from the company’s first-quarter forecast, which contemplates the impact of internal and external forces on results. Official guidance calls for comps to be flat or decline 2% despite an easy comparison against the prior-year first quarter when comps declined 1.4%. In formulating that guidance range Walmart surely doesn’t want to overpromise and under deliver the way it did during the fourth quarter, so predicting a continuation of negative results is the safe play given the high degree of uncertainty on many levels.
For starters, there is the execution issue of re-assorting stores and shopper reaction to the changes, coupled with the effectiveness of marketers to communicate the changes and the time frame in which to regain meaningful levels of shopper traffic. It is very difficult to forecast a time frame for a rebound in shopper traffic and sales, but it is safe to say that Walmart didn’t get itself into the current situation in one or two quarters and corrective actions almost always take longer to yield results than it does for failed strategies to destroy shareholder value.
Even in a best case economic scenario it would be challenging to accurately pinpoint when results would improve, and the nation is nowhere near a best case environment. In fact, Walmart’s core shoppers remain under pressure due to a challenging labor market, and rising fuel prices are never a good thing for Walmart as its customers see their discretionary spending pinched.
Despite these obstacles and headwinds, Walmart soon will find itself cycling against two prior periods of negative results, which makes its comp challenge a lot easier. Throw in some food price inflation and it is conceivable numbers could turn positive later this year even if the company doesn’t regain lost traffic simply because its existing shoppers would be paying more for the same goods and possibly buying other categories as Walmart expands assortments.