In this photo taken Dec 15, 2010, the check-out inside a Wal-Mart store in Alexandria, Va, is shown. (Photo: AP)

New Jersey, United States

The world’s largest retailer is fighting back.

In the last two years Wal-Mart has seen competitors chipping away at its dominance and taking advantage of changes in its pricing strategy and its decision to remove thousands of products to streamline its stores.

Now the undisputed king of the retail industry, with more than US$400 billion in revenue last year, is pledging to match its U.S. rivals’ prices and restock its departments. It’s also opening smaller stores around America to go head-to-head with popular dollar stores, that generally sell inexpensive items for one dollar each.

In the battle for shoppers it’s Wal-Mart versus everyone else. Among the main rivals: Target, Costco and dollar stores.

Dollar stores beckon, their small size ideal for quick shopping. Target discount chain offers five per cent off if you pay with its store-branded card. Costco, which runs more than 580 warehouse clubs in the US and abroad, tempts with high-end, brand-name food and designer clothes at competitive prices.

Bernadette Clark used to visit Wal-Mart here twice a week. Now it’s twice a month. She got fed up last year when Wal-Mart stopped stocking some of her favorite brands and she couldn’t count on low prices.

“It gave me the opportunity to look elsewhere,” she says. “I shop around more.”

Three years ago, Wal-Mart ruled for convenience, selection and price. But today it is losing customers and revenue, and smarting from decisions that backfired.

Wal-Mart is not in danger of ceding its place atop the retail world. But competitors have begun to chip away at its dominance.

Over the last year, revenue at Wal-Mart stores open at least a year has fallen by an average 0.75 per cent each quarter, according to the International Council of Shopping Centers. Revenue rose by an average of nearly 1.7 per cent at Target, eight per cent at Costco and 5.9 per cent at Family Dollar.

To fight back, Wal-Mart is again emphasising low prices and adding back thousands of products it had culled in an overzealous bid to clean up stores. It’s also plotting an expansion into cities, even neighborhoods where others dare not go.

“We are running a better business because our competitors cause us to raise our own game,” Wal-Mart CEO Mike Duke told The Associated Press in an interview. Wal-Mart expects to halt the decline in revenue when it reports results from its fourth quarter this month.

Unlike most stores, Wal-Mart thrived when the Great Recession struck in late 2007. Its core customers — US households making less than US$70,000 a year — bought more. For many, it became the only place they shopped. Affluent shoppers became price conscious and discovered Wal-Mart’s prices were hard to beat.

All of Wal-Mart’s US$27 billion in revenue growth for the year ending in January 2009 came from greater demand for basic items — food, pharmacy and household goods. Shoppers spent 13 per cent more on basics at Wal-Mart that year.

Shoppers also liked that Wal-Mart’s stores looked neater. The company was finishing a major renovation to address complaints that its stores were messy. Wal-Mart widened aisles, eliminated clutter, improved lighting and lowered shelves.

Family Dollar and Dollar General posed little threat. Their stores generally were dingy, and their shelves were filled with low-quality clothing and housewares. The groceries weren’t major brands.

Target, meanwhile, struggled with the perception that its prices were high. And stores filled with non-essential items — think brightly colored, decorative pillows and kitchen accessories — didn’t appeal to shoppers focused on making ends meet.

So Wal-Mart had a competitive edge. It lasted until June 2009, the month that economists would later determine was the end of the Great Recession.

Around that time, Wal-Mart’s renovation started to backfire. As part of its store overhaul, it had removed thousands of products from its shelves. Gone were top-selling toothbrushes and other things that people counted on Wal-Mart to stock, like handkerchiefs. Wal-Mart got rid of 20 per cent of its groceries, about 10,000 items in that area of the store, says Burt Flickinger, who runs the consulting firm Strategy Resource Group.

Shoppers began complaining that Wal-Mart no longer had items they wanted, even some of their favorite brands. Revenue began to decline.

“We cleaned the stores up, but we cleaned them up too much,” says Duke, who had become CEO just months before, in February 2009.

Wal-Mart’s next mistake was pricing. Over the past year, it strayed from its “everyday low prices” slogan, the bedrock philosophy of founder and namesake Sam Walton. Wal-Mart was less aggressive about being the low-price leader. Instead, the company slashed prices only on select products, and the deals were temporary. The idea was to draw customers into stores for the bargains and hope they would also pick up other, more profitable items.

But the strategy failed.

The economy was still weak. Customers were scrutinizing prices as many had never before. They discovered that Wal-Mart couldn’t be counted on to have the lowest price on some items, if it stocked them at all.

Wal-Mart’s mistakes have had a lasting sting.

Shoppers are no longer confident that they can “take care of their shopping list on one trip and get rock bottom prices,” says Robert Buchanan, an independent retail stock analyst.

Revenue at Wal-Mart stores open at least a year, a key measurement of any retailer’s health, has fallen for six straight quarters. That is the longest such stretch since at least 1980, when ICSC chief economist Michael Niemira began tracking the figures.

Wal-Mart executives have acknowledged that fewer people have walked into its stores every quarter for the past year compared with the corresponding period a year earlier.

While Wal-Mart has lost shoppers, competitors have gained.

— Dollar stores are winning over customers with convenience. Their parking lots and stores are less than a tenth the size of those at most Wal-Marts. They stock eggs and milk in coolers up front near the registers. Bread is on a nearby shelf. That makes it easier for shoppers to get in and out quickly. They’re carrying more major brands, especially food.

Shoppers spend about the same as they did a year ago at Family Dollar — about US$10 a trip on average — but they’re coming in more often, the company says.

Combined, Family Dollar and Dollar General took in about US$20 billion in the last fiscal year, just five per cent of Wal-Mart’s US$408 billion in revenue. But together they have thousands more stores than Wal-Mart, and their revenue is growing at an enviable rate.

— Target scored a win against Wal-Mart with its five per cent discount for purchases paid with a Target credit or debit card. The incentive, launched in October, applies to everything sold in its stores, from toys to fast-selling iPads.

Wal-Mart won’t match the discount, even though it’s losing customers. Duke says loyalty and credit card programs are expensive to run and Wal-Mart wants to give low prices to all shoppers.

Target is Wal-Mart’s largest rival, though its revenue of US$65 billion for its last fiscal year was only one-sixth of Wal-Mart’s. Target has maintained its reputation for stylish clothes at low prices. It’s also added fresh fruits and vegetables to an expanded grocery section.

— Wholesale clubs, particularly Costco, weathered the recession and are picking up Wal-Mart customers, too. Costco’s membership, which includes small businesses, grew by two million to 58 million last fiscal year. Customers shopped its warehouses more often and spent about 2.5 per cent more on each visit than they did in 2009, the company says.

Wal-Mart hopes the holiday season marked the end of the declining revenue. Analysts surveyed by Thomson Reuters expect Wal-Mart to report a 0.9 per cent increase in revenue for the November through January quarter. Wal-Mart will release its quarterly and year-end results Feb 22.

It’s a start.

Wal-Mart expects other changes to fuel growth. They include going beyond the return to “everyday low prices.” Wal-Mart upped the ante in the fall by pledging to match competitors’ prices. The company is also pressing its suppliers to give it the lowest prices on goods including clothes, food and cosmetics, says Cameron Smith, a recruiter for Wal-Mart vendors.

The retailing behemoth will also open more smaller stores. Some will be less than 30,000 square feet (2,780 square meters) about a sixth of the size of the average Wal-Mart store. These will be in small US towns the company figures can’t support a big-box store, in an effort to go head-to-head with dollar stores.