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Friday, January 24, 2014 9:40 PM


Retail Sales Cannibalization


Retail firings continue. Today, Wal-Mart announced a 2% Reduction in Sam's Club Employees to thin middle-manager ranks.

Wal-Mart Stores Inc. (WMT) is laying off about 2,300 employees at its Sam's Club warehouse unit to help thin the ranks of middle managers in its weakest stores, marking the club chain's biggest round of job cuts in four years.

Nearly half the job cuts at Sam's Club will target salaried assistant managers, and the remainder will be hourly employees at underperforming stores.

"Over the years, we've migrated to a top-heavy structure in our management," said Sam's Club Chief Executive Rosalind Brewer, in an interview. "What this does is align the number of assistant managers to the sales of the club and to where our growth areas are."

The cost-cutting moves come as Ms. Brewer aims to better compete with brick-and-mortar rival Costco Wholesale Corp. (COST) as well as to take on online membership clubs like Amazon.com Inc. (AMZN) Prime service. She seeks to double revenue and turn it into a $100 billion business, roughly the size of Costco.
J.C. Penney Cutting 33 Stores and 2,000 Jobs

The Sam's Club cuts are fresh on the heels of this announcement: J.C. Penney cutting 33 stores and 2,000 jobs
J.C. Penney Co. is attempting to right-size itself by closing 33 under-performing stores around the country and eliminating 2,000 positions, the retailer said Wednesday.

The Plano, Texas, company said it hopes the effort will save $65 million a year beginning this year.

Units getting the ax will finish shutting down in early May.
Macy's to Lay Off 2,500 Employees

Also recall this announcement earlier this month: Macy's to Lay Off 2,500 Employees Amid Cost-Cutting
In the same breath as it announced a “successful” holiday season, Macy’s Inc. said it would lay off some 2,500 employees as it attempts to achieve $100 million in savings a year.

In addition to the workers losing their jobs, some associates will be reassigned or transferred, the retailer said. Not all open positions will be filled.
Customer Cannibalization

Let's now return to the lead story, Sam's Club. "CEO Brewer aims to better compete with brick-and-mortar rival Costco as well as to take on online membership clubs like Amazon Prime service. She seeks to double revenue and turn it into a $100 billion business, roughly the size of Costco."

Is that remotely possible? If so how?

The only way it is possible is via reducing prices and costs to the bare bone and taking customers away from Amazon, Macy's, J.C. Penny and its own parent company, Wal-Mart.

The deflationary repercussions are enormous.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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