Walmart Scraping the Bottom With KMart
Roland is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Those of you who have been reading my posts on here have come to realize that I don’t watch or pay attention to the generated-for-Wall-Street numbers found prevalent in most other posts. I watch the feeder streams and the weather up river. This keeps me from being the one swimming in the river when the Wall Street generated numbers suddenly say there is a 30 foot high Tsunami wave 3 feet up stream. Those of you who were chasing returns during the dot-com (bomb?) flame out and the mortgage backed security implosion should have learned by now that numbers generated for Wall Street consumption are of no use to non-day-trading individual investors.
The best sources of information, even better than most of insider type information which sends hedge fund managers to prison is the information found in the feeder systems. Recently I tried to educate many of you on how to do this type of research with a post titled Wal-Mart Gets Schooled. Here is another installment of how to do this research. This post is directly related to the previous post.
In a recent consumer survey taking into account the entire consumer experience (IN-STORE: Selection, Quality, Customer Service + WEB-SITE: Selection, Quality, Customer Service) Wal-Mart (NYSE: WMT) is now tied for 9th with KMart (NASDAQ: SHLD). Many of you will be shocked to learn that Costco (NASDAQ: COST) came in first while JC Penny (NYSE: JCP) tied with Kohl’s (NYSE: KSS) for second. This is not the first survey of this type that I have heard about, nor is it the first Wal-Mart heard about, hence Wal-Mart’s move to upgrade its beef in an attempt to regain much of the grocery market and boost their position in these over-all ranking surveys. It is too soon to tell if that will help their rankings in this type of survey, but it should boost their overall grocery sales when they start announcing the switch.
JC Penny is a long way from being a Wall Street darling or a trendy store for kids. It’s a blue collar mainstay, and a source of wrinkle free oxford shirts for both tie wearing executives and teenage restaurant wait staff, especially in those chains pushing “flare” (think “Office Space”). Most of the retailing industry laughed when JC Penny management announced a move to “stable pricing” and items specially priced for a month. This pricing model works well on the internet. This pricing model also dramatically reduces the cost of marketing since they won’t be churning out weekly sales brochures and commercials.
Penny's shareholders are laughing all the way to the bank right now. The stock is currently trading near its 52-week high and once the impact of this new pricing model kicks in, I fully expect their stock to be trading near $80 by the end of 2012. The amount of money retail chains spend on advertising and sales gimmicks is simply staggering. The Twitter generation isn’t loyal to anyone other than Apple. That generation surfs the Web for the best price when they are ready to buy. Their grandparents are the ones who had store loyalty. Penny’s has found a way to bring them both back in the door without having to do expensive “cool stuff” marketing.
If you are laughing at my $80 expectation, it is because you still haven’t fully grasped the depth of information this little survey provides. Let me spell it out for you.
Despite the fact we are deep into the Second Great Depression people choose quality and service over low cost.
Not one of the stores ranking above Wal-Mart has a reputation for bottom feeding prices like Wal-Mart. A very large segment of the population has been forced into shopping at Wal-Mart due to their economic situation. If the economists are correct about the jobs we are adding, as soon as these people get money they are going right back to shopping at Penny’s and Costco. If Wal-Mart doesn’t start selling American and quality, they are going to be a loser when the new economic prosperity hits. Wal-Mart knows this, it’s one of the reasons they switched their beef.
Roland Hughes is the President of Logikal Solutions and author of many titles. He does not knowningly own a position in any of the companies mentioned.
Motley Fool newsletter services recommend Costco Wholesale and Wal-Mart Stores. The Motley Fool owns shares of Costco Wholesale and Wal-Mart Stores. SeasonedGeek has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.