Wal-Mart Confronts a Conundrum: How Does the Biggest Get Bigger?

In November, Wal-Mart had a decrease in sales, a rarity for the company, which fared worse than many U.S. retailers the day after Thanksgiving. (By Carolyn Kaster -- Associated Press)

Wal-Mart has a problem: In 93 percent of American households, one person shops at its stores at least once a year, and that's not good enough for the company.

The retailer wants to continue growing to keep investors happy. But how? If it can't attract new shoppers to push up its sales, it must get the occasional ones, who dash in for bargain dog food or paper towels and then hurry out, to cross the aisle and load up on clothes, bedsheets and flat-panel televisions.

For a year, Wal-Mart has been trying to get those sporadic and mostly higher-income customers to do that. It designed a line of up-to-the-minute clothes. It stocked its shelves with organic cotton sheets and sustainable fish. It wished its customers a "Happy Holiday," not a "Merry Christmas." It hired civil rights leader Andrew Young to burnish its image. It joined the National Gay and Lesbian Chamber of Commerce. This year, it began remodeling nearly half its stores.

On Thursday, Wal-Mart reported a decrease in November sales at stores open at least a year, a rare decline that weighed down holiday prospects for the entire retail sector.

Many of Wal-Mart's core customers disliked the new clothes and skinny jeans, which also failed to set off a serious buzz among the fashion conscious. "Merry Christmas" is back, after the American Family Association and the Catholic League launched a boycott. In May, Wal-Mart pulled out of South Korea, and followed that with a retreat from Germany in July. In August, Young quit after making inflammatory remarks about ethnic grocers in African American communities. In September, Wal-Mart said it was getting rid of layaway, which analysts said sent the wrong message to the 20 percent of its customers who do not have a bank account. Then came the November sales report.

"You got to ask yourself: What happened?" said Howard Davidowitz, chairman of Davidowitz & Associates, a retail consulting and investment banking firm in New York that has done work for Target and Kmart.

More important for Wal-Mart, has the retail approach of stack 'em high and sell 'em cheap, which transformed a little company from rural Arkansas into a chain of more than 3,300 stores and bellwether of the American economy, run its course on its home turf?

"They're in a box," said Charles Fishman, a senior writer for the magazine Fast Company and author of the book "The Wal-Mart Effect." "There's a limit to the market for what they're offering. They're smacking up against it."

Wal-Mart's management does not have to be reminded of its predicament. In October, chief executive H. Lee Scott Jr. acknowledged the rapid switch to hipper clothing worked in urban stores but not nationwide.

"We overloaded the fashion part," Scott told analysts. "That's not who we are."

Management also described a difficult set of circumstances: Company surveys indicate that the pain of high gasoline prices and utility bills lingers for many Wal-Mart shoppers. The remodeling also has hurt sales.

Some factors have been beyond Wal-Mart's control, such as 5 million fewer people shopping on Black Friday this year. Yet Wal-Mart fared worse than many retailers that day, dragging down November sales for the entire industry by 2 percent, the International Council of Shopping Centers said. Without Wal-Mart, November sales would have increased by a healthy 4 percent.