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Attention Wal-Mart Shoppers: Please Keep Spending


Big-box leader tracks consumer habits to increase profit.

When trying to gauge consumer sentiment, it might be wise to forget about university surveys and US Department of Commerce statistics. Instead, take a look at Wal-Mart's (WMT) customers.

Value-conscious shoppers at the world's largest retailer have changed their buying habits and credit-card use in response to what's looking more and more like a recession.

More families are buying baby formula at the beginning of the month, when they're more likely to have a little money. In the past, Wal-Mart says there weren't such clear peaks in baby formula sales.

Wal-Mart says use of credit cards declined sharply in the second quarter of 2008 - the mirror image of double-digit increases for the same period last year, when the economy seemed strong and consumers felt confident. This suggests consumers are now being selective about purchases, rather than just filling the cart and putting the goods on a credit card.

Tight-fisted customers mean Wal-Mart and competitors Target (TGT) and Costco (COST) will have to market smartly and aggressively. Keep an eye out for coupons, cash-back promotions, 2-for-1 deals and other ways to stretch a buck, or at least to create the impression of a bargain.

But customers may be one jump ahead of the retailers as increasing numbers switch to lower priced store brands from premium national brands. At Wal-Mart, this hasn't yet resulted in a change in the merchandise mix - but you can bet it's a trend retailers are watching closely.

Some shoppers are also going to Wal-Mart less frequently. This may be in response to high gas prices, or it may suggest more customers are living paycheck-to-paycheck in the downbeat economy. However, it appears those who are unemployed are making more trips, but buying fewer items each time.

In either case, overall sales are rising in the middle of the month, when many workers are paid. For many, this is the "live-it-up" check - the one that isn't consumed by rent or mortgage payments. The uptick -- about 2.5% -- wasn't apparent when consumers were flush and the economy was strong.

Wal-Mart's decision to sell generic prescription drugs at $4 now looks prescient. The company estimates that the program has saved consumers about $1 billion.

Wal-Mart is reducing capital expenditures and opening fewer stores, though it will still pursue its stealthy new line of small-box grocers.
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