If there is one company that is set up to operate and thrive in one of the worst economic crises in decades, it is Wal-Mart. With economic panic and daily retail losses gripping the market, Wal-Mart calmly came in with a 10 per cent increase in its third quarter earnings over last year’s report.

One day after Best Buy gave a dreary report and outlook, calling this perhaps the worst retail environment they have ever faced, Wal-Mart told markets that their early season Christmas deals seem to be going over well with shoppers. Although the company did lower its fiscal year guidance, the rest of the retail world can only watch in awe as Wal-Mart stands as an impenetrable pillar of strength as the broader retail sector withers and crumbles around it.

Significant economic data Thursday (November 13) helped tell the story of how the world’s largest and most dominant retailer could thrive in a down economy. A surprisingly bad jobless claims report showed that more Americans are out of work now than have been since just after 9/11. This follows the report earlier in the week that showed consumer spending is at a long-term low as well. Many Americans are either unable to afford discretionary items, or they are protecting against potential job losses.

It would be interesting to look inside the minds of Wal-Mart executives to gather their real thoughts on the current economic environment relative to the company’s success. Just a couple years ago, Wal-Mart, a company with global sales that outpace its next three biggest competitors combined, was trying to figure out how to compete with the upbeat Target enterprise. It was Target that was the model of success in discount retail a few years ago, with its “Expect More. Pay Less.” philosophy.

Thought many would still prefer the Target model in an ideal economy, the “Always the low prices” mantra at Wal-Mart is calling many discerning customers. It is not just jobless concerns that are contributing to Wal-Mart’s success. A tougher credit market and fear about credit accessibility is causing some shoppers to monitor their credit card spending more than before. Credit card use has trended up significantly in recent years in the US. Now, some consumers are opting for budget-conscious buying instead.

Thought many retailers have suggested this could be a dismal holiday shopping season, Wal-Mart seems to think it will benefit from other retailer’s losses. The company and analysts widely expect price-savvy gift buyers to opt for the volume and discount gift opportunities at Wal-Mart this season.

Wal-Mart reported that it earned $3.14 billion, or 80 cents per share in its third quarter (ended October 31). Last year, the company posted a $2.86 billion (70 cents per share) third quarter. What makes the company’s profit report even more impressive is that Wal-Mart, like other global retailers, is suffering from earnings pitfalls caused by converting foreign sales into stronger US dollars. Just as some retailers had misleading profits earlier in the year, with a weak dollar, some are suffering in that they are not getting as many dollars now from their conversions from weaker foreign currencies (such as the Euro and Pound).

Market Recap

Wednesday was another day of panic selling in US equities. The Dow gave up 411 points in its third straight down day to open the week. Fear over potential failings of major US automakers gripped the markets. Retail sales were sluggish with Best Buy leading the way. Treasury Secretary Paulson tried to calm the concerns but announced changes in the government bailout plans. Oil fell below $55 per barrel in after hours. The dollar fell hard versus the yen. Volatility was the rule Thursday as stocks erased a 300 point Dow fall early and surged impressively late to post a 552 point gain. Early fears about ongoing economic trouble and fresh news about a 25 percent foreclosure lead to early losses. Bargain hunting was credited for late gains.

Neil Kokemuller
Thursday, November 13, 2008
7:23 PM EST

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University.

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