Welcome to the 27th installment of The Wal-Mart Weekly, a column dedicated to bringing you insight, wit, facts, results, opinions and just a bit of everything else when it comes down to a very hot topic these days: Wal-Mart.
This past week, I discussed Wal-Mart Stores Inc. (NYSE: WMT) possible move away from the "do it all" Supercenter and toward smaller and more customizable stores. Customers are wanting a more personal, customized experience when shopping these days, and the "circus bazaar" shopping feeling a standard Wal-Mart Supercenter gives off is falling out of favor.
But, that's been Wal-Mart's bread-and-butter recipe for growth since the early 1990s -- and the retailer shouldn't alter this successful recipe just because it's growth has slowed. Tell that to investors, though. The market continually clamors for more growth, and this is causing Wal-Mart to look at other store formats to make that growth happen.
Is "low prices" the only strategy Wal-Mart has left?
Wal-Mart reported stronger than expected August same-store sales results, won on the back of "reduced prices" during the back-to-school shopping season. Good news, to be sure, but also problematic.
Wal-Mart U.S. sales chief Eduardo Castro-Wright said almost a year ago that Wal-Mart would seek other avenues of growth besides its famous "lower prices" strategy, which has worked fabulously for more than a decade (almost two), but no longer cuts the mustard.
Of course there is a loyal customer segment that are Wal-Mart shoppers for the long haul, those who will always shop Wal-Mart because they believe it always has lower prices than anyone else. Add to that oil changes, gasoline discounts, haircuts and banking, and Wal-Mart is doing just fine with tens of millions of customers every day.
The only problem is that those loyal customers aren't buying higher-margin products in droves, nor are more millions signing up every day to become discount-frenzied Wal-Mart shoppers. Many customers now require a cleaner, more customized and glitzier shopping experience, and they're willing to pay a little premium to get it. Witness Target Corp.'s (NYSE: TGT) strategy. It's one of the few success stories against the Bentonville-based retailing behemoth recently, and we can expect to see more in the future.
Why is it that Wal-Mart always falls back to its core strength? What else does it have?
When Wal-Mart stated that August same-store sales increased by a larger-than-expected 3.1%, company officials attributed the increase to lowered prices on back-to-school items. Wal-Mart often uses loss leaders (items sold at near or below cost) to get feet in the door, only to upsell those customers with well-placed additional merchandise in the obstacle course of a standard shopping trip. Endcaps, impulse and other displays silently scream "buy me!" to those customers, and many put excess items into those shopping carts, especially if the price is perceived as low.
Of course, Wal-Mart is not the only retailer to employ a strategy like this -- all retailers do it to some degree. But, when one of the larger sales months of the year increases sales due to a strategy revolving around price drops, it flies in the face of Castro- Wright's promise to try and seek customers who will buy higher-margin goods, and who will fill their baskets with items that are not loss leaders.
The coming holiday shopping season will seal the deal
With the upcoming winter holiday shopping season, we'll see if Wal-Mart has the moxy to try and sell all those goods with the panache of a specialty retailer and reap the consequent higher margins. Or will it fall back into its comfort zone of promoting low prices on anything and everything to get as many shoppers as possible in the door.
More shoppers equals more sales volume, and that can equal increasing margin if the product mix is set up for it. Problem is, I am not sure the retailer can sway as many customers as it would like into those higher-margin goods that would finally give Castro-Wright something to crow about. Wal-Mart's current public image and brand definitely is not reflective of a strategy shift like Castro-Wright has been publicly stating.
It takes guts to challenge a winning (if stagnant) formula. In the case of Wal-Mart, it will take a long time as the retailer experiments with changes to see how customers react. Maybe we're all too anxious for these changes. But my end question is: are they even coming?











Reader Comments (Page 1 of 7)
9-07-2007 @ 5:47PM
roudy11z said...
This is another great observation Brian. You do well.Let me add that WMT closed down .37cents and Target closed down -$2.39 for a change. I don't know why but someone does. I close with my opinion I give often:fire Lee(wennie fuzz) Scott and buy out Rob Walton and watch things get better. But what do I know?
9-07-2007 @ 6:28PM
Oz said...
Sales are up but I see no mention of net operating profit? If they bought revenue with deep discounts it will hurt when it comes time to post earnings.
9-10-2007 @ 8:50PM
KT said...
I used to be one of those loyal Wal Mart customers. They had good prices on quality products, all in one place. The only thing now is the quality. Used to be able to rely on what you bought there. Now, more often than not, its lowest quality junk.
9-10-2007 @ 4:47PM
James Morman said...
If Wal-Mart is buying up a lot of smaller stores which will offer lower prices for Chinese merchandise, we'll all just have to become label readers so that we're not taken in by junk and 'food' that we don't want in our homes. Hint: where is the chicken used by Campbell's and Swanson's
"manufactured"?
9-12-2007 @ 3:08PM
W.H. Lott said...
I am retired, the company I retired from beat me out of my retirement and my 401k so my income is small. I buy what I need at Wal-Mart and save enough that I can eat and buy my medications for the month. If I purchased what I need from any other store I would have to give up my meds or quit eating, NOT, I would have to give up my meds, I like to eat, so thank you Wal-Mart for the food on my table.
9-12-2007 @ 3:12PM
Nancy Wegener said...
I use to do all my buying at Walmart, then they went to Super Walmart and it has gotten so bad that I buy maybe thirty dollars worth a month. They would have their employees cleaning under the gondoylas in the grocery section at 10:00 Saturday morning, you could not get down the aisles. They would have two employees stocking the freezer section from one large pallet so you could not get down that aisle. By the time you finally got to the checkout counters you had a 30 minute wait, at least. They had no dress code for their employees, jeans would be around the guys butts, hickeys all over their necks, tattoos everywhere, see thru blouses, low cut tops, etc. Children would be riding bikes down the aisles, throwing balls back and forth, kids running into you thru out the store. No one cared, especially their employees. I am not saying this happens at every Walmart, but in my town, this is it. I now do most of my shopping at Target, their come on items or the lowest prices are not worth it to me. Sam Walton would be terribly disappointed if he saw what was going on with Walmart now.
9-12-2007 @ 3:20PM
Debb said...
I love Walmart. I go into the store aware that they might not have the lowest price of a particular item, but I'm loyal to the store and willing to lose 46 cents with the knowledge that the item I want will be there.
Walmart should continue to advertise lowest prices. It's worked so far....why change?
9-12-2007 @ 3:30PM
Rebecca said...
I hate Walmart! ..but, sadly, I shop there because It's closest to me and cheap. It's filthy, the parking is a rat race, there are times I have stood in line to check out for over 2 hours (post Katrina during the holidays), it offers little to no Organic produce, and overall I always leave feeing angry that I just had to spend my time there. Sometimes I travel over an hour away to shop elsewhere when I can afford the time and money difference.
9-12-2007 @ 4:03PM
Madeleine Brockwell said...
If WalMart keeps lowering prices as they advertise they do, then why isn't anything free?
9-12-2007 @ 3:25PM
Debb said...
To Nancy
I don't know where you live, but that Walmart should be reported if what you say is true. It's a shame you stopped shopping there. I think Target is too expensive.
9-12-2007 @ 3:29PM
Westeban said...
As the Chinese ships dock full of goods, and return with scrap iron and other worthless items for ballast, the trade deficit soars. I personally will pay a little extra to shop somewhere other than Wal-Mart based on principle, not on price.
Rural towns are becoming nothing more than whistle stops on train lines as downtown areas dry up and die because of the SuperCenter down the road. I'm all for capitalism, but at what cost?
Chinese products are becoming less safe every day as they apply third world standards to products coming to our shores. They then threaten to dump our currency and ruin our economy if we retaliate. What is the solution?
9-12-2007 @ 3:33PM
D.Roman said...
As retailer of 50+ years, Costco has greater values comparing dollars and quality without the "low price" logos.
9-12-2007 @ 3:33PM
TiffanyMIchaelia said...
Speaking of strategy shift, Good Morning America did a segment on Wal-mart's strategies this morning. As a long-term Wal-mart shopper, here in the southeast they definitely have lower prices than Target or Kmart. I don't think that shifting strategies to a smaller store is going to increase profit margins that greatly, simply for the fact that more and more middle to low income families can hardly to afford to shop anywhere else. If what Good Morning America reported is true, the "back to basics" route that Wal-mart is supposedly hyping up their store managers for, will do much more good for both the company and the average American family than any sort of personalized customizable shopping experience.
9-14-2007 @ 12:22AM
Jackie Taylor said...
Wal-mart may have cheap prices now... but watch out... I was in wal mart a couple of weeks ago and the sign on the self said $3.69 and when I got to the check out.... mmmmmm it suddenly became $4.69.... that's a rip off and a way for the company to make you think that you are getting a bargain when you are not.... watch those cash register receipts.... also... when they take over .... look out you will have higher prices and lower quality in food and other merchandise... walmart was built on made in america products... Thanks for reading this
9-12-2007 @ 3:38PM
brenda said...
I love walmart but i dont shop there like i use to because on there dum part they took out there layaway stupid stupid stupid, that is by far the only way that alot of people can shop for christmas birthdays so on. why they would ever do that and yeah me too go alot to target or kholes so wal mart i hope you enjoy this christmas with a failer to bring down the house see ya
9-12-2007 @ 3:42PM
phoenix said...
Wal-mart, will not allow employees to stop "out of control children" , they would rather pay a law suit, than offend the childs uncareing parent. Too bad for the customer who comes there to do a little quite shopping. No such thing. I have seen parents allow thier children to, climb displays, chew on toys, then put them back, pee on the floors, discard unwanted foods on and in displays. too many things to mention. And Wal-MART will do nothing to stop it. Not to mention the cheap shody stuff that comes from china.
9-12-2007 @ 3:44PM
DOUGLAS PILON said...
WAL-MART SAID "IF WE DON'T HAVE IT WE'LL GET IT "
THIS IS NOT TRUE !! I'M BEEN TRING TO GET COFFEE THAT NOT HANDLE HERE IN MICH. BUT IS CARRIED IN GA,FL. AT OTHER WALMART STORES DOWN SOUTH BUT NOT HANDLE HERE IN THE NORTH. THE BRAND IS CAFE PILON IN REG OR DECAFE. TWICE WAS TOLD THEY CAN GET IT - BUT NOW BEING TOLD WAL-MAKE WON'T APPROVE OF IT !! MORE OF THE SAME THING, JUST BUNCH OF BS . PEOPLE GET TIRED OF THIS. I CAN SEE WHY WAL-MART IS LOOSEING GROUND ON THE MARKER
9-12-2007 @ 3:49PM
ELAINE said...
WALMART IS CHEAPER THAN TARGET OR K-MARK BUT I DONT LIKE SHOPPING WALMART ANY MORE BECAUSE IT's no more layaways.
9-12-2007 @ 3:53PM
marie said...
Wal-Mart can get away with their low prices because they take money from their employees on a regular basis. Using"cost of living" guidlines that they themselves establish. They make money from the government when they hire people that recieve government assistance. Christmas is their fav time of year because they hire many of these people, then after 6 months(the required time to get money from the government), they are simply let go(layed off). I have seen people get layed off on Christmas Eve. Thank God my former employer re-hired me after Wal-Mart treated me like yesterday's newspaper!
9-12-2007 @ 3:49PM
timber said...
I'm not impressed with Wal-Mart. It has caved into the demands of unrepentant socialists in Southern California, and the result is that the nearest Wal-Mart to me (in Burbank) without going to El Barrio is 22 miles away (Porter Ranch.)
Combine that with the fact that Wal-Mart's prices are NOT the lowest, and why should I shop there? Oh, sure, their prices are lower than "standard retail"...but who shops standard retail anymore? Their food items are just as expensive as every other grocery store, often moreso (see Milk, Orange Juice, Eggs) and their entertainment items are the same as Best Buy/Circuit City "on sale."
Combine that with the fact that EVERYTHING is cheaper "on the internet", and those items can be delivered to your door, often for free, and how can that be a "deal" to go to Wal-Mart? Harry Potter is a perfect example. Price at Wal-Mart: $17 and change. Price on Amazon.com: $17 and change. Buy $25 and shipping is free, and Amazon guaranteed to have the book on your doorstep the day of release.
Wal-Mart has also been raising prices by nickels and dimes for the last four years. It's annoying.