Why and how recession benefits Wal-Mart

Accounting Presentation Speech

Wal-Mart: Expanding its market base

While the United States economy stalls, the world’s economy is still expanding, and the world’s largest retailer Wal-Mart is striving to expand its market base internationally. Before the recession, economists warned against buying stock in Wal-Mart, stating that it was a poor investment, given that it had already saturated the United States with its all-pervasive presence. Yet over the course of the downturn, its stock has risen rather than declined, and one of the reasons for this is its ability to “tap into the continuing global boom” (Gross 2000). Wal-Mart’s international sales rose 17.5% from January 2008-January 2009. International sales constituted 24.2% of the retailer’s overall sales. “In the most recent quarter, international sales rose 18.8% from the year before and for the first time accounted for more than 25% of total revenues” (Gross 2009).

Wal-Mart is still tending to its domestic market, however. Given the shrinking access to credit, Wal-Mart is going against the tide and offering more credit to cash-strapped consumers. “In addition to the extra discounts on ‘thousands of products,’ the retailer said it will offer no interest for 18 months on purchases of $250 or more with a Wal-Mart Credit Card” (Tasini 2009). This will encourage consumers to shop at Wal-Mart if they cannot get credit elsewhere and to buy more ‘big ticket’ items like washers and electronic items. Also in a commitment to expand its market share, Wal-Mart has cut prices 10 to 30% to show its sympathy for the needs of the increasing number of unemployed Americans (Tasini 2009). Wal-Mart is encouraging the use of credit and consumption while sticking to its formula of high-volume sales and low, low, prices. While many might contend that this philosophy of buy now, pay later is how America found itself in the current economic crisis, the formula to expand its market seems to be working for the world’s largest retailer.

Recession: Why it benefits Wal-Mart

Until the current economic crisis, Wal-Mart was lagging behind its chief rival Target. Target was seen as the more stylish of the two retailers, and although Wal-Mart was still the world’s biggest retailer, its market share was shrinking. “From 2003 to 2007, Target’s annual same-store sales growth averaged 4.6%, while Wal-Mart’s clocked in at 2.9%. Over the same period, Target’s annual profit growth averaged 16%, while Wal-Mart lagged behind at 10.3%.” (Gregory 2009). In response to the threat of Target, Wal-Mart was striving to go upscale, making encroachments into the organic food market and luxury goods. In 2005, “at a 203,000-square-foot test store in Plano, Texas, an upscale suburb of Dallas” Wal-Mart was “showcasing expensive jewelry, $500 bottles of wine, plasma TV sets and other expensive items” to compete with Target’s affordable and edgy style of chic (Van Riper 2006).

But although Wal-Mart never commanded the organic, clothing, and home and beauty product glamour of Target, its fortunes have improved. While “Target’s profits last year dropped a stunning 22.3%, to $2.2 billion. Wal-Mart’s 2008 bottom line rose 5.9%, to $13.5 billion” (Gregory 2009). This is largely attributed to the fact that “Target devotes some 40% of its shelf space to home and apparel items, which are struggling, while setting aside less than 20% for consumables like food, health items and beauty products. Wal-Mart sets aside 45% of its space for consumables” (Gregory 2009). In the words of one consumer: “Wal-Mart sells what you need to have…as opposed to what you want to have” (Gregory 2009). Wal-Mart purchases are, by and large, not impulse buys, and consumers that once bought their groceries at Whole Foods or Costco are now shopping at Wal-Mart, and Gap shoppers are buying their children’s clothes at the mega-retailer — if they are buying clothes at all.

Works Cited

Gregory, Sean. (2009, May 14). Wal-Mart vs. Target: No contest in the recession. Time Magazine. Retrieved April 26, 2009 at http://www.time.com/time/business/article/0,8599,1885133,00.html

Gross, Daniel. (2009, February 26). The Wal-Mart puzzle. Slate.com. Retrieved April 26, 2009

at http://www.slate.com/id/2185221/

Tasini, Jonathan. (2009). Wal-Mart: Recession ambulance chasers. The Huffington Post.

Retrieved April 26, 2009 at http://www.huffingtonpost.com/jonathan-tasini/walmart-recession-ambul_b_83799.html

Van Riper, Tom. (2006, August 16). Wal-Mart goes upscale. Forbes.com. Retrieved April 16,

2009 at http://www.forbes.com/2006/08/30/walmart-goes-upscale-cx_tvr_0830walmart.html

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