Wal-Mart’s Stepped-Up D.C. Push a No-Brainer

by Jeff Reeves | November 17, 2011 10:28 am

Wal-Mart Stores (NYSE:WMT[1]) has been taking a beating lately. Disappointing Wal-Mart earnings[2] showed higher costs sapped profits, and the retail giant recently lowered its full-year forecast. Costco (NASDAQ:COST[3]) and others continue to overshadow Wal-Mart in the discount marketplace[4]. WMT stock has gone pretty much nowhere in two years.

But there are signs that things could be turning around. The company has stopped its slide in U.S. same-store sales at its namesake Walmart stores recently, and is embarking on an ambitious campaign to tap into urban markets.

Ground zero for this expansion is Washington, D.C., where the big-box retailer plans to open six Walmart stores.

Wal-Mart has been working on a scheme to open stores in the nation’s capital for some time, but this week the company announced it will be rolling out two more stores than originally planned. The locations include neglected urban areas with few retail options and persistent unemployment. City leaders partnered with Wal-Mart with the idea that new stores would provide a much-needed shopping alternative for residents and offer up new jobs. The retailer claims its stores will create a total of 1,800 retail jobs and 600 construction jobs.

Critics, of course, worry the move will drive out mom-and-pop retailers and offer jobs that offer minimum wage instead of a livable wage.

Whether the move is right for the District and its residents is one thing, but it’s a no-brainer for Wal-Mart. Typically relegated to small-town America and the suburbs, WMT has struggled to connect with urban shoppers that represent a huge area of opportunity. Rivals like Dollar General (NYSE:DG[5]) and Dollar Tree (NASDAQ:DLTR[6]) have been eating Wal-Mart’s lunch with smaller locations in strip malls. Dollar Tree — including the company’s latest earnings, reported Thursday — has seen 13 straight quarters of year-over-year profit growth, and Dollar General has seen 10 in a row.

The fact that Wal-Mart, the world’s largest retailer, has struggled amid an economic downturn is very counterintuitive. One would think that persistently high unemployment would appear to work in the favor of discounters like Wal-Mart.

But clearly just offering low prices is only part of the equation. Wal-Mart hopes it can see big gains by pushing into a D.C. area with less competition and no current WMT presence. You can be sure that if this model shows material success, the big-box giant will be eyeing other urban areas very soon.

Jeff Reeves[7] is the editor of InvestorPlace.com. Write him at editor@investorplace.com[8], follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. As of this writing, he did not own a position in any of the aforementioned stocks.

  1. WMT: http://studio-5.financialcontent.com/investplace/quote?Symbol=WMT
  2. Disappointing Wal-Mart earnings: http://investorplace.com/2011/11/wal-mart-earnings-disappoint-again-wmt/
  3. COST: http://studio-5.financialcontent.com/investplace/quote?Symbol=COST
  4. overshadow Wal-Mart in the discount marketplace: http://investorplace.com/2011/10/costco-wal-mart-walmart-cost-wmt/
  5. DG: http://studio-5.financialcontent.com/investplace/quote?Symbol=DG
  6. DLTR: http://studio-5.financialcontent.com/investplace/quote?Symbol=DLTR
  7. Jeff Reeves: http://investorplace.com/2011/11/2011/11/2011/11/market-rally-bank-stocks-financial-sector/2011/11/3-dividend-commodity-stocks-vale-scco-si/2011/11/2011/10/optimism-about-europe-debt-resolution-a-risk-to-market-rally/2011/10/2011/10/2011/10/no-bear-market-for-5-funds-etfs-slv-gld-thd-xrt-fdn/2011/10/author/jeff-reeves/
  8. editor@investorplace.com: mailto:editor@investorplace.com

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