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Wobbly Wal-Mart Trips Again

The retailer reports another sales shortfall as competitors heat up.
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Fashion-minded shoppers who found a discount haven at

Target

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have little interest in shopping at

Wal-Mart

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, judging from the October sales report issued by the world's largest retailer over the weekend.

Wal-Mart estimated that its monthly same-store sales growth, tracking sales at stores that have been open for at least a year, slowed to 0.5% in October. The discount giant had previously predicted a much larger increase of 2% to 4%, and its shares recently were down $1.17, or 2.3%, to $49.56.

The S&P Retail Index, meanwhile, fell just 0.2%. While Wal-Mart is often seen as an indicator of consumer spending strength, many of the retailer's issues seem to be company-specific.

Wal-Mart's latest shortfall comes after a series of sales misses. The company struggles to shed its bargain-basement image and attract higher-scale customers like those who gave Target its tongue-in-cheek nickname, Tar-Zhay. Wal-Mart has launched a large-scale store remodel, and it has packed its apparel shelves with more private-label and fashion-oriented clothes in an effort to remake its dowdy image.

But the store remodels are hurting traffic, and the new apparel offerings haven't been well-received, says Ken Perkins, president of the research firm Retail Metrics.

"They're trying to follow Target upscale and broaden their appeal," Perkins says. "It's a much bigger leap for Wal-Mart to do that, given the widespread perception that it's the rock-bottom retailer. Wal-Mart and fashion are not concepts that go together in most people's minds."

Adding to these perceptions, Wal-Mart has become a lightening rod in political circles because of its use of cheap, foreign-made products, the strains it puts on small-business competitors and the efforts it makes to cut labor costs out of its business.

Such criticisms, which don't stick to rivals such as Target and

Costco

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, have tarnished the company's image in populations concentrated in urban areas -- places where Wal-Mart has had trouble gaining a foothold.

In a tacit acknowledgement of its troubles, Wal-Mart has launched an aggressive public relations campaign to counter its critics and complement its efforts to change the look of its stores. The strategy hasn't always been successful, as evidenced by its October sales estimate, but changing the public's attitudes toward a universally recognized brand like Wal-Mart will take time.

Richard Hastings, retail analyst with Bernard Sands, says there is widespread slowness in general merchandising throughout the retail industry as consumers cut back on big-ticket items and discretionary spending. He also says efforts by competitors such as

Kohl's

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and

J.C. Penney

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to steal market share have hurt Wal-Mart's apparel business.

But the company's sales weakness hasn't spread to its rivals in the retail industry. Target said earlier this month that its same-store sales were on pace to meet its forecast for a 3% to 5% gain. Perkins says his firm's monthly same-store sales index, tracking results from over 70 major retail chains, is expected to show a healthy 4.8% increase, excluding Wal-Mart's results for October, after the bulk of the industry's sales are reported on Thursday.

Including Wal-Mart's performance, the index is expected to show a 2.9% jump.

"We wouldn't expect the disappointment at Wal-Mart to carry over to other discounters or other retailers in general," says Perkins.

Hastings says Wal-Mart's troubles could hurt other retailers this holiday if the company is forced to get more aggressively promotional to juice its sales.

"If they roll out heavy discounts over the holiday on items like electronics, toys and sporting goods, that could send ripples throughout the industry and cause some real problems for competitors," says Hastings.