From paper towels at Toys R Us to bagged lettuce at Target TGT, several large retailers are taking a page from Wal-MartWMT— the king of one-stop shopping.
The world's largest retailer, whose annual meeting is set for Friday in Fayetteville, Ark., about 25 miles from its headquarters in Bentonville, Ark., continues to rapidly gain new shoppers with its focus on the basics.
Its rivals are stretching beyond their longtime boundaries to keep cash-strapped consumers coming in the door.
Target, known for cheap chic clothing and home accessories, hopes boosting its grocery offerings will help it grow. It is also relaunching an in-store line of home and personal-care products like sunscreen. Toys R Us, which has long carried baby formula and diapers, is rolling out a new section in 260 of its almost 600 stores with more consumables, like paper towels, hand soap and detergent.
Family Dollar StoresFDO has been rapidly expanding its once-limited food assortment and adding brands like Jif peanut butter from J.M. SmuckerSJM and Triscuits from Kraft's NabiscoKFT brand as it strives to pull in more shoppers. It added 200 new food items in May, according to company spokesman Josh Braverman.
Ken Perkins, president of RetailMetrics, noted there was a good reason consumables weren't seen as a growth engine before- profit margins are much thinner in food than apparel or home furnishings.
"It's boring, and there's not much glamour," Perkins said. "But Wal-Mart has set the gold standard and the path to follow in recessionary times."
Merchants are realizing that if shoppers are going to keep spending less, stores need them to come in more frequently. Offering a greater range of necessities will help.
Sales at established Wal-Mart stores, known as same-store sales, have been one of few bright spots in retail since the recession began in late 2007.
Necessities like groceries and health and wellness items accounted for about 60% of Wal-Mart's revenue of $405.6 billion last year, bringing in about $243 billion.
Including Wal-Mart, the same-store sales index from the International Council of Shopping Centers-Goldman Sachs has averaged a 0.5% decline this year compared with last. Without Wal-Mart, the industry index would have fallen 4%. Sales at stores open at least a year are considered a key indicator of a retailer's health.
Similarly, first-quarter profits fell 12% this year compared with last year industrywide, and without Wal-Mart they would have dropped 17% — though the profit gap between Wal-Mart and the rest of the industry has narrowed as merchants increase cost-cutting, Perkins said.
The big issue is whether Wal-Mart will be able to retain its new customers once the economy recovers. Wal-Mart's stock soared 20% in 2008, as investors focused on companies that benefited from the steep downturn in consumer spending. But its shares have fallen 10% so far this year as Wall Street turns to retailers that sell more discretionary goods and could benefit when the economy improves. That has driven up share prices for such merchants as Macy'sM and Minneapolis-based Target, both of which suffered steep share declines in 2008.
Wal-Mart officials remain upbeat, saying such frugality will remain. The company also worked hard to spruce up its merchandise, upgrade store service and clean up stores.
"Consumers are changing their thinking, and their behavior," said Mike Duke, who assumed the reins at Wal-Mart Feb. 1, in an address to investors last month. "Our regular customers are shopping with us more often and for more items, and we're attracting more new customers."
Megan Keller, a 24-year-old office worker who lives in Oconomowoc, Wis., went back to shopping at Wal-Mart last summer to save money.
"I buy food and produce just because it's cheaper there," said Keller. "It's not even the sale items. It's just the price there."
Keller is also limiting her twice-weekly Wal-Mart shopping trips to essentials like food as she worries about her job and being in graduate school.
Wal-Mart faces big challenges as its core customers remain weighed down by tight credit and a weak job market. But Eduard Castro-Wright, the Wal-Mart vice chairman who leads its U.S. namesake stores, said in a recent address that 17% of its growth in customer traffic came from new customers, based on sales data in February. These new shoppers are spending 40% more per visit than the company's average transaction, executives said.
Retailers say focusing on necessities is paying off. Target's chief executive, Gregg Steinhafel, said cost controls and strong sales at established stores in necessities like food helped his company's first-quarter earnings beat Wall Street estimates. Necessities account for about 40% of Target's sales.
Family Dollar's same-store sales increased 6.4% in its latest quarter, helped by increased customer traffic. Food is now approaching 20% of sales, up from 15% for the Matthews, N.C.-based chain. Family Dollar Chief Financial Officer Ken Smith recently told investors that cutting costs and procuring goods more efficiently have offset the lower profit margins of the grocery items.
Spokeswoman Kathleen Waugh at privately held, Wayne-N.J.-based Toys R Us said sales in its new consumables departments have surpassed expectations. Waugh said that the retailer wanted to expand such offerings as a service to parents, but the rollout is happening at an opportune time, now that shoppers are focusing on staples.
Stores are finding they have to be careful as they respond to shoppers' penny-pinching not to miss the rebounding economy. Family Dollar is already seeing improvement in nonessentials, for instance, but it has a way to go.
"We are seeing some signs of growth in various discretionary areas, but I think it's really at a very moderate level right now," Jim Kelly, president and chief operating officer of Family Dollar, recently told investors. "On the other hand, we need to carefully manage risk during this time period because there still remains a great deal of uncertainty."