Enough is enough. After watching its competitive advantage over the supermarkets dwindle in recent months, Wal-Mart Stores Inc. is ready to slash prices in order to win back customers, says new research from Citigroup Capital Markets.
"WMT’s price savings no longer outweigh the experience and convenience of shopping the supermarkets," analyst Deborah Weinswig said in a note to clients.
"As the economy improves, we expect [Wal-Mart] to fight harder to keep this customer by significantly increasing rollbacks to drive mindshare and market share."
Ms. Weinswig upgraded the giant retailer to Buy from Hold, raising her price target on the stock to US$65 from US$54. In early trading Monday, Wal-Mart shares are up 2%.
Same store sales at locations with both Clean Action Alley, the retailer's effort to tidy the main aisles once crowded with merchandise on pallets, and the Smart Network, a digital in-store advertising initiative, are outperforming the company average as well as stores with only one of these initiatives, the analyst said.
"Customers are finding it easier to navigate the store, which is leading to larger basket sizes and higher ticket, she wrote. "We believe the improved experience will draw customers back to WMT from the supermarkets and could also draw a higher income customer."
Mr. Weinswig also expects a revamped apparel management team to help Wal-Mart capitalize on the sales and margin opportunity from global sourcing as early as second half of 2010.