Wal-Mart Could See Bumper Holiday Season Sales

September 26th, 2012 by Trefis Team
-9.26%
Downside
59.71
Market
54.18
Trefis
WMT: Walmart logo
WMT
Walmart

Following a disappointing holiday season in 2011, Wal-Mart (NYSE:WMT) has decided to increase the seasonal hiring and offer more work hours to the existing staff. In 2011, the comparable store sales during the fourth quarter including the winter holiday season registered an increase of 1.5 %, which was lower than the expected. [1]

The retailer will be hiring about 50,000 employees by mid-October this year. [2] Although Wal-Mart did not mention the figure for the last year, it stated that this year’s hiring is slightly more than 2011. The company seems to be taking pre-emptive steps to ensure fruitful results from the most profitable season of the year.

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Holiday Season Will Be Critical

The beginning of the holiday shopping in the U.S. is marked by Thanksgiving and is the busiest time of the year for the retailers. Every year there is a significant increase in the consumer spending in the holiday season. The average consumer spending has steadily risen since the recession and the spending during holiday season this year is expected to be notably higher compared to 2011. [3]

The winter holiday season is ranked first among the biggest selling seasons in the U.S. The festive season begins with Halloween and is followed by the winter holidays. [4] According to Reuters, the total spending on Halloween is expected to increase to $8 billion in 2012 compared to last year’s $6.9 billion. [4] An average consumer spent about $72.31 on Halloween decorations in 2011 and this figure will increase to $79.82 this year. [4] This is a clear indication that the U.S. consumers are likely to spend more during the holidays to follow.  The aforementioned facts also indicate that the retailers’ earnings during the winter holidays will be notably higher than 2011 when the figure stood at $471.5 billion. [4]

The consumers tend to buy more electronic items during the holiday season. According to an annual survey by CEA (Consumer Electronics Association), the number of people planning to buy electronics has been increasing consistently since 2008. [5] This figure rose from 64% in 2008 to 83% in 2011 with most of the purchases being smart phones and tablets. [6] As the launch of iPhone 5 and Windows 8 boosts the electronic market, there will a significant improvement in the sales of laptops, smart phone and tablets.

Wal-Mart has been pushing the electronics sales aggressively in order to compete with pure play retailers such as Best Buy (NYSE:BBY) as well as online retailers such Amazon (NYSE:AMZN). Hence the hiring of additional staff to improve the services at stores is clearly justified.

Hiring Additional Staff Will Lead To Improved Services, Thus Higher Sales

Wal-Mart has over 1.4 million employees across its 4000 stores in the U.S. [7] During the holiday season, as the competition starts to soar high, the services at its stores prove insufficient due to the limited staff. The traffic in the stores is considerably high and the customers have to wait for a long time in queues before they pay their bills. The addition of temporary staff to all segments of the store will ensure smooth operations during this busy season and enhance the shopping experience for customers.

In the electronics segment, Wal-Mart has a lower price advantage over its competitor Best Buy. However, to fight off the competition with Amazon, ensuring fast and efficient services at stores is necessary. The additional staff can help the retailer by better connecting with customers and maintaining service standards.

Although the consumer spending in the U.S. has shown an upward trend since 2009, it is still not at the pre-recession levels. There is a reason for Wal-Mart to rejoice this time, but the company will need to stay aggressive and leverage its efficient supply chain to grow revenues.

Our price estimate for Wal-Mart stands at $70, implying a discount of about 5% to the market price.

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Notes:
  1. Wal-Mart’s holiday disappoints investors, CNN money, Feb 21 2012 [↩]
  2. Wal-Mart to hire more than 50,000 for U.S. Holiday rush, DailyFinance, Sept 21 2012 [↩]
  3. U.S. Consumer Spending, Ycharts, Sept 25 2012 [↩]
  4. Americans to spend more on Halloween this year:Survey, Chicago Tribune, Sept 24 2012 [↩] [↩] [↩] [↩]
  5. Consumer spending expected to improve in second half of 2012: CEA, Satellite radio playground, Aug 21 2012 [↩]
  6. ref:4 [↩]
  7. Wal-Mart to hire 50,000 for the holiday season, syracuse, Sept 21 2012 [↩]