Wal-Mart Loses Its Way

It's good Wal-Mart is able to keep its cost structure in check. Now, the company needs to figure out its focus.

Monday, the company said it would enhance its electronics offerings and brighten up stores in an effort to attract traffic. Wal-Mart already has launched remodeling initiatives and efforts to sell higher-margin products.

If successful, a pickup in electronics sales should boost margins, because that category tends to be more profitable than segments such as groceries and generic drugs.

And the latter group is exactly where Wal-Mart performed well this quarter. There's nothing wrong with selling lots of food and drugs. Many companies, such as Safeway (SWY Quote) and Kroger (KR Quote), are doing very well in that business. But for Wal-Mart to boost profits, it needs higher-margin merchandise to go out the door (and not through shrinkage, or stolen goods, which increased in the first quarter).

Despite the effort to promote higher-end goods, Scott said on a recorded earnings call, "We will be committed more than ever to price leadership."

To me, it's a bit of a disconnect to highlight high-margin, high-end goods one day, and then emphasize its low-cost value proposition the next. Sure, there may be room for both, but the messages are getting convoluted.

Wal-Mart is throwing everything at the wall and hoping something sticks. Four-dollar generic-drug-pricing stuck, because that is in line with Wal-Mart's typical modus operandi. Higher-end flat-panel TVs seem like a reach.