Wal-Mart Stock a Big Gamble in Light of Black Friday Plans, But … (WMT)

Is it possible that Black Friday has become so cliche and so ridiculously competitive that retailers would now be better served by dialing back on their door-buster hysterics?

Walmart Stock a Big Gamble in Light of Black Friday Plans, But ... (WMT)Wal-Mart Stores (WMT) thinks so, limiting the number of days — and the number of items — it’s selling at dirt-cheap prices at a point in time when holiday shopping hits full throttle.

While the world’s largest retailer’s unwillingness to play post-Thanksgiving sales games this year the same way it has in the past might initially worry shareholders, owners of Wal-Mart stock may actually be better served in the long run by the newly muted Black Friday extravaganza.

A Simplified Black Friday

It’s a risky bet, to be sure — but not so much with consumers as it is with WMT investors. Rather than stretch out a litany of amazing daily deals between Thanksgiving evening and the end of Cyber Monday five days later, Wal-Mart aims to draw a big shopping crowd on Thursday, Nov. 26, using great prices on a smaller number of goods, though with more than a handful of them on hand.

Whenever they’re gone, that’s it — the company seems to be planning to lay low in terms of promotions the rest of the weekend, letting its rivals spend fortunes in advertising dollars for the right to effectively give merchandise away at cost, if not less. Once the initial dust has settled, Wal-Mart says it will resume offering its typical holiday promotions, right up to Christmas.

Wal-Mart’s new chief merchandising officer Steve Bratspies simply explained, “They want simple.”

It’s a refreshing reversal of what’s become an almost ridiculous fight for customers. But, in that most holiday-shopping spending is done in the first store a customer visits, it could also backfire …

Not that it would be a bad thing for the long-term value of Wal-Mart stock if it did.

Big Risk, Big Reward for WMT

Twenty years ago, the day after Thanksgiving was a busy one, but not a maddening one. Ten years ago, 6 a.m. openings and even Thursday-evening openings became more common. Now, it’s an all-out war leveraging loss-leaders in conjunction with unheard-of store hours that end up costing retailers more than benefitting them.

Some retailers claim the loss-leaders and crazy hours are still worth it, as it draws a crowd to a store, and those shoppers then buy other goods. Consumers have become hyper-savvy though, committing to only buying the loss leader if it’s available, and walking out of the store empty-handed if the store is sold out of the item.

In that same vein, while Black Friday is still the biggest brick-and-mortar shopping day of the year, it’s an increasingly less important one.

Last year in the United States, total retail spending was down 11.3% for the whole Black Friday weekend, yet retail spending for the whole of November was up 5.4%. It’s a sign that spending is starting to take place outside the confines of Black Friday weekend, with a great deal of it materializing even before the unofficial beginning of the Christmas shopping season.

With those numbers and facts in hand, Wal-Mart may well be making the smart decision to dial back its Black Friday efforts and offer those promotions at another time.

Bottom Line for Wal-Mart Stock

If Wal-Mart were thriving and investors were confident in its future, this is a gamble shareholders might be willing to tolerate if it ended poorly. Wal-Mart isn’t thriving though, and the fact that Wal-Mart stock is down 36% since January’s peak and is well into new 52-week low territory right now makes it clear that the market is anything but compelled by the company’s long-term plans.

If this Black Friday tactic doesn’t pan out and the retailer doesn’t offset those lost sales at another time this month or next month, heads could roll (proverbially).

Still, a sharp selloff from WMT after a poor holiday-spending showing between now and late December may set up a nice buying opportunity for an underestimated Wal-Mart … a retailer you can bet won’t make the same Black Friday mistake again for a long, long while if this one goes bad.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/11/walmart-stock-big-gamble-wmt/.

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