The highlight of news in the retail industry this week focused on Wal-Mart’s announcement that the company had posted better than expected profits of 3.2%, even though same store sales declined slightly in the U.S..  In the October quarter, Wal-Mart earned $3.24 billion, up from $3.14 billion in the year ago quarter.  Overall sales came in at $99.4 billion from $98.3 billion a year ago.

According to a New York Times article, the company attributed the slight decline in U.S. same store sales solely to falling prices across categories of food as well as electronics. Company officials were quick to point out that consumers remain quite worried about the economy and the uncertain job market, and continue to cut-back on their discretionary purchases.

Continuing the theme expressed by other companies in this global economy, profit increases were facilitated by productivity and cost control improvements including fuel savings.  Wal-Mart reduced inventory in its U.S. stores by $1.8 billion, which is quite a significant amount.  The company’s internal green and sustainability initiatives have no doubt had some impact on reduced fuel savings in private and store facilities. It was also noted that the company would focus on continued expense control as it moved into the critical holiday season.

Readers may well recall Wal-Mart’s prior multi-year high profile initiatives focused on RFID enablement, the key benefits of which were to improve on-shelf availability and improve overall inventory levels.  It appears that Wal-Mart has obviously found a way to reduce inventory without RFID. The company’s “Project Impact” initiative that focuses on less cluttered store layouts and higher-volume merchandise, coupled with the firm’s typical hard nose relationships with suppliers have had some impact on reduction of overall inventory.

The statement of deflationary pricing pressure in consumer goods surprised me.  From what I’ve been observing, major CPG companies such as Kraft and Kellogg’s have been raising their prices during these past few months, in order to maintain their own levels of profitability.  The obvious conclusion then is that consumers are either opting toward buying lower cost generic or lesser-known brands, or have a keen focus on price and coupon promotion.

In consumer electronics, particularly televisions, the march of the technology curve has facilitated the ability to offer lower priced units with adequate features. That should be no surprise since that has been the product lifecycle characteristic of this industry for many months. A Wal-Mart executive noted that the average unit price for flat-panel TV’s is down more than 20 percent in just a year. Wal-Mart’s “Project Impact” initiative calls for merchandising and selling more higher volume consumer electronics, including flat-panel TV’s.

Wal-Mart is the obvious giant in the retail industry, and as Wal-Mart responds to the market, the effects on the entire industry are a consequence.  This latest summary of financial performance points to supply chain cost and productivity savings as the facilitator of continued profitability levels.  The open question is where does Wal-Mart go from here to continue its profitability performance?

It would be interesting for Supply Chain Matters readers to get the inside perspective of Wal-Mart’s ongoing initiatives toward sales and profitability growth.  If you reside in an organization that is a major supplier to Wal-Mart, what types of pressures have been initiated to reduce inventory but insure on-the-shelf availability? What forms of overall pricing pressures have Wal-Mart buyers exhibited of late?

Share your observations in the comments section below this posting.

 Bob Ferrari