Wal-Mart Focuses on Retaining Customers Beyond Recession

(MoneyWatch)  Wal-Mart CEO Mike Duke is looking beyond the recession, placing emphasis in the company's first quarter conference call on its ability to retain high-income customers won during the recession.

Not that he's predicting a rapid economic rebound. Rather, he noted that business improvements Wal-Mart has made and continues to make in the recession should serve to keep new customers coming into the stores after the economy improves.

In the conference call, Duke stated:

Customers have changed their behavior and their mindset. They're proud to tell people that they shop at Wal-Mart. We believe the improvements we've made in merchandising, marketing and operations ?€" in the U.S. and around the world ?€" are sustainable. This is not a short-term phenomenon. Customers will always be interested in saving money, and they will always appreciate the value of getting better value.

Duke characterized first quarter financial results as a "strong start" to the company's fiscal 2010. Wal-Mart's earnings of 77 cents per share were at the high end of its guidance and met the Reuters Thompson analyst average forecast. Comparable store sales were strong as well, advancing 3.7 percent overall in the United States. The Walmart stores comp was 3.6% while the Sam's Club figure was 4.2%. Keeping new customers on board is important because Wal-Mart certainly doesn't want to return to what it endured mid-decade when its sales growth trailed rival Target and its share price stagnated. Wal-Mart has something to worry about. Despite its stronger financial performance this year, the company's share price has gained only about 10 percent from winter lows while Target's stock has seen a 60 percent rebound.

Many recent Wal-Mart initiatives regarded as adaptations to the recession, including the reintroduction of its Great Value private label and enhancements to its electronics business, also position the retailer to retain customers after the economy warms. If, as many pundits predict, consumers stay frugal even after the recession ends, a better Great Value label could remain attractive even to more affluent shoppers. Promotions for films such as Twilight may have enjoyed success in a home entertainment sector that has proven resilient in the recession, but they also establish Wal-Mart as a go-to place for new movie releases and that will draw consumers to electronics, now and in the future. And those initiatives broke as Wal-Mart introduced a new store format that is brighter, more open and you might even say more like Target or at least more like an environment Target's traditionally more affluent customer base likes to shop.

Wal-Mart is touting improved results in home and electronics operations as evidence that its initiatives are drawing the interest of new customers. In a recent presentation, Eduardo Castro-Wright, Wal-Mart's vice chairman, said new customers are driving 27% of Wal-Mart sales growth, and that 55% of households that have joined its shopping ranks recently have incomes of over $50,000. As those customers came on board, he noted that the spread between the comparable store sales figures for Wal-Mart and its nearest competitor in home furnishings reached 8.7 percentage points and in U.S. consumer electronics, 4.9 points. He added that Wal-Mart is launching initiatives like those that have boosted home and consumer electronics in other departments to make them more attractive in and after the recession.

In the first quarter conference call, he said:

In February, approximately 17 percent of our measurable growth in traffic came from new customers. Their average basket size is 40 percent higher than our average. We are committed to retaining these new customers through our new assortments and the way they experience the brand in our stores.