The world’s largest retailer might not be immune to the housekeeping slowdown succeeding all

By Ben Steverman

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Sometimes humble prices aren’privately enough. The outlook in the place of retailers has turned so ungenial that but also Wal-Mart (WMT) is feeling the effects of the consumer slowdown.

The world’session largest retailer had looked like it was actually benefiting from the household slowdown as consumers flocked to its low-priced offerings. Wal-Mart’s stock posted a gain in 2008, one of just a maniple of large-company stocks to finish so.

But steady Jan. 8, Wal-Mart warned that fourth-quarter profits could have being 12% below previous estimates. December same-store sales, which had been rising strongly in the manner that consumers sought out deals, missed expectations by rising only 1.7% in the U.S.

Pinching Pennies

The supply market was expecting weak retail results from the holiday season, but not necessarily from Wal-Mart. Analysts and investors noted that Wal-Mart customers were buying necessities, such for the reason that groceries, rather than luxury items. Also, discount supplies were attracting cash-strapped consumers who otherwise might prefer more upscale shopping venues.

But Morgan Stanley (MS) analyst Gregory Melich notes that half of Wal-Mart’s sales aren’cheek by jowl in groceries but in discretionary items. "If those categories are simple, profits have power to be weak," he wrote in a billet on Jan. 8.

One problem for Wal-Mart: Other retailers, such as Nordstrom (JWN) or Limited Brands (LTD), offered big discounts of their own to attract stingy consumers. Retailers with heavy promotions may have won customers at the expense of "everday estimate" chains like Wal-Mart, says Robert W. Baird & Co. consumer and retail analyst David Cumberland.

Hunting for Value

Also, according to Wayne Titche, chief investment officer of AMBS Investments, consumers may have existence trading below the horizon to cheaper merchandise amid a weakening administration, mete they’re also looking for skilful value. He wonders if Wal-Mart discounted the wrong items in some cases.

"It’s not just trading down. It’s perceived value for the money" that matters, Titche says. Wal-Mart garnered much publicity with its "Black Friday" offerings of deeply discounted flat-screen TVs. But low-quality televisions at a discount won’t attract like many buyers of the same kind with discounts on high-quality TVs, Titche notes. "Just offering merchandise that’s cheaper doesn’t prevail upon someone to buy it."

Of course, the Bentonville (Ark.) behemoth wasn’t alone in its misery. December sales suffered penuriously across the board from bad weather in many parts of the U.S. for the reason that well as from a dramatic cutback in expenditure.

Higher-end retailers were hit hard. Saks (SKS) last month saw same-store sales drop 20%. Abercrombie & Fitch (ANF) posted a 24% plunge in same-store sales.

At Sears’ (SHLD) Kmart chain, December same-store sales fell 1.1%, but the fetter’s domestic same-store sales was off 7.3%.

Nordstrom reported a decline in same-store sales of 10.6% in December.

Original text: http://www.businessweek.com/investor/content/jan2009/pi2009018_275086.htm?campaign_id=rss_null