Can Wal-Mart Lure Back Shoppers from Dollar Stores?

At times, it is necessary to adapt to the changing tides in the economic landscape.  Wal-Mart (NYSE:WMT), the world’s largest retailer, is making another attempt to adjust to the weak economy.  On Thursday, the company unveiled its layaway plan, just in time for the holiday season.

The plan officially kicks off on October 17th, and will be available on certain toy and electronic gifts with a retail price of $15 or more.  In order to participate, customers must have a total minimum layaway purchase of $50 and make a down payment of 10%.  Layaway purchases are to be paid in full by December 16th.  So how does Wal-Mart make its money?  The plan also includes a one-time non-refundable $5 service fee. There is also a $10 cancellation fee for orders not picked up by December 16th or cancelled by the customer.

The move places Wal-Mart in a growing class of companies that offer layaway plans.  Companies such as Sears Holdings (NASDAQ:SHLD), Target (NYSE:TGT), Best Buy (NYSE:BBY), and TJX Companies (NYSE:TJX) all offer layaway plans.  However, we believe this move is another attempt to gain an advantage (or merely keep up) over more thrifty consumer alternatives.

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As the chart above shows, Wal-Mart shares have been underperforming Family Dollar (NYSE:FDO), Dollar Tree (NASDAQ:DLTR), Dollar General (NYSE:DG), and Costco (NASDAQ:COST).  Family Dollar and Costco offer layaway plans while the rest do not.

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It’s no secret that Wal-Mart (NYSE:WMT) has been struggling this year.  In August, an internal memo reviled that visits to Wal-Mart US locations open at least a year decreased 2.6% from February to June.  The retailer tried to improve store traffic with new products, but cash strapped customers were not interested.  Competitors such as Kroger (NYSE:KR) and Dollar General actually saw an increase in traffic over the year.

Only time will tell if Wal-Mart’s (NYSE:WMT) layaway plan will boost store traffic and sales.  The holiday season is the most important time of the year for retailers, and Wal-Mart will continue to adjust in order to recapture lost dollars.

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