Retailers emulate Wal-Mart's focus on necessities

"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."

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