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?
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Reader Comments (Page 7 of 7)
9-12-2007 @ 8:32PM
Glenda said...
Wal-Mart was a wonderful store when they started out, and I shopped it, and enjoyed it...BUT there was also TG&Y in my part of the USA, and you could still play one against the other, what one did'nt have, the other usually did. That was back in the day when Mom's sewed a lot, or at least I did, making most of my kids clothes. I have watched over the years the "selling out of America" with great sadness. Friends, we did it to ourselves when we abandoned our Mom and Pop stores, like Anthony's, TG&Y, Woolworths, I can't even remember all the stores I have watched go down after WalMart came in...It's hard to find anywhere else to shop around here, BUT there are a few more stores coming in, so maybe. The real thing I wanted to say will touch a sore spot with many, and I do totally understand. BUT WalMart's $4.00 prescriptions will hurt many, many small pharmacies, and when they all fold, guess what, medications will go up too...
They do not have the best interest of America in mind...Try to go and find any merchandise ANYWHERE in any store in the american shopping experience that was made in the USA. (Huh...Uh!!!!!) Not much to choose from....
Thanks for this forum to let us vent, but we need to wake up before it is too late....
I think they really lost it when they gave up having layaways, believe it or not, some folks don't have or want 5 or 6 credit cards...so they will lose a lot of business there...
9-12-2007 @ 8:31PM
lola said...
i have finally quit wal-mart, i'm from the san joaquin valley because i have never been there that i was not over charged on something, or was not charged the displayed price.the wal mart employees try to swipe things so fast that most people don't realize they've been had til they look at the receipt when they get home.i make sure i know my prices and i let them know when a mistake is made. so i just gave up having to watch my items while they were being rung up, it was me against them, it ain't worth it to me to much stress.I now go to target or costco !
9-12-2007 @ 9:00PM
Joanna said...
Don't know about other parts of the country but every time I shop at Walmart, which is not too often mind you, the store is so filthy I feel like I need a biohazard level 4 shower when I leave. Sam Walton would be spinning in his grave at the dirt and grime. How can Target always have nice clean stores with pleasant associates that can put two sentences together and while Wallmart needs so much improvement in both those areas all I could suggest would be to hand the manager's a mop and send their associates to be trained at Target?
Why to I shop there you may well ask? Some of their clothing lines are quite nice, although as one article stated, Walmart's clothing departments look like they just shot the clothes out of a canon. Suprisingly their baked goods are quite tasty. I tell myself the baking process must have killed the germs.
The big problem I think Walmart is going to have is being so dependent on Chinese imports. In the business I am in many of the products I sell are produced in China. In the last couple of months I have had several clients willing to pay more for a product if it is not made in China, especially if they are doing a promotion geared toward children. That has very, very rarely happened in the past. The clients are bringing it up, not me. Telling me they don't care if cost more, no Chinese made goods. I predict a big backlash on Chinese made products, especially in the upcoming holiday season. Any retailer loading up and advertising American made goods will make a bundle.
9-12-2007 @ 8:38PM
Lucille said...
WalMart is cheaper on clothing, but as far as grocerys, Kroger is far less expensive.
9-12-2007 @ 8:49PM
ruth said...
hello i am an associate of walmart. i have worked for them for 5 yrs. i don;t know were a lot of you people shop but at my store we have a dress code. if we do not wear the dress code we are sent home to change. we are not allowed to tell kids that they are not to climb on the merchandise. they pay their employees minimium wage. are stor e is clean, if the lines are long we have managers on register to help ring people out, also walmart helps out their employees in case of emergencies like a fire or death in the family. im saying is if you don't like to shop at walmarts don't we are not making you shop there you have a choice have a good day
9-12-2007 @ 9:20PM
Owen Clark said...
What does my money go towards. does it go to all you asst. or does the my purchase percentage and money revenue go to your boss as a bonus. When do you get your just rewards for doing all the work of selling the product at Wally World.
9-12-2007 @ 9:31PM
Stew Pidd said...
Clean up in aisle 7!
9-12-2007 @ 9:33PM
NyteKrawler said...
In response to comment #20 : You have to use the 5 - finger discount!
9-12-2007 @ 10:05PM
yolanda said...
I never shopped at walmart until I was out of town and it was the only store open 24/7. It was a superwalmart and they had lots of things at great prices. The superwalmart is a great place to shop! In my area there is not a superwalmart. I went to walmart but it's not that great. I was very excited to find that they had layaway, until the sales lady said"we don't have layway any more". What a shame. I know that layaway can be a pain but I know they made money when people never picked their layaway up. I am normally a target shopper.
9-12-2007 @ 11:08PM
Susan said...
It seems that a lot of the people on this blog have repeated themselves and blogged the same message over. For myself, I shop at Wal-Mart. I don't like buying goods made in China so I make a number of things myself. I have read the entire blog and have a number of comments.
1) America is still a free country---shop wherever you want but don't steal to have the things YOU want but aren't willing to work for.
2) My son works for Wal-Mart. They have a very strict dress and conduct code.
3) Some of what has been said about the prices being lowered is correct, some just idle ramblings of simple minds. If you take a sales paper from another store the department lead associate will always meet or beat that price.
4) We in the South appreciate that Wal-Mart has a no-Union policy. The reason that so many manufacturing jobs in the US have been lost can be laid at the feet of Unions. The auto industry is a prime example. The unions have priced the laborers out of jobs. They raise wages so the standard of living goes up and the auto prices are raised and the circle goes round and round until no one can make any money. Look where the foreign auto manufacturers set up shop---in the South where most people are anti-union. BMW, Merecedes and Toyota have plants in the South without the help of Unions. They pay their employees well and everyone is happy without the MOB influence. Look around people if you want to work there are jobs available but most Americans want the government to keep them up. They demand higher wages until no one can make a profit so the jobs are gone. Wake up and learn to live within your means.
5) Wal-mart offers every employee very good health insurance at an affordable rate. Being in the health care profession, we see many Wal-mart employees and I can testify that their insurance pays more and takes less time to collect than any other insurance.
6) I do have an issue with the pay increases. I have seen my son work double shifts and then get sent home because of overtime. But when someone calls in or no one is scheduled in his departments he hates leaving them without someone to cover. On his last anniversary he was only given a 40 cents raise. He works extremely hard for $9.00/hr. Good parents raise their children to be polite and curteous to all people and I have had many people including the district manager of Wal-mart tell me what a "true Southern gentleman" my son is. So when an associate at Wal-mart is rude to you. don't blame Wal-mart. Blame the breakdown in the American family, illegal drugs and the increase of the welfare mentality.
7) I do think that Wal-mart now carries too many items that are made in other countries. But once again, Americans expect higher wages so they can buy bigger cars and houses than they can afford. They have credit cards forced on them by big banks offering lower interest rates. Then they expect their employers to raise their salaries so they can payoff those credit cards that they have used willy-nilly without thinking about how they will pay in the end. Everyone wants something for nothing. Well, folks, move to Russia. This is a capatilist society not a communist.
And some of you really need to have stayed in school and learn how to read and write. Stop being stupid. Ron White says, "you can't fix stupid." This blog has proven his point.
9-13-2007 @ 1:32AM
ccchiefchris said...
WalMart has come a long way but they need to assess what they are doing to the fixed/low income loyal customers. What they are doing is allowing people who sit behind desks dictate and choose what is carried in their stores rather than letting the stores have inputs or asking their customer base before an item is remove or replaced by another. How hard is it to put up a notice about a pending discounting of an item and see what customers think. When you ask about items that have been removed, you are told that it was a "corporate decision" to do so. This is all being done so that all the stores are set up the exact same way and aren't carrying a good selection of items like they used to, but this way the inventories are standardized and you can go to any WalMart and not find what you are looking for!
9-13-2007 @ 1:34AM
Chris said...
WalMart has come a long way but they need to assess what they are doing to the fixed/low income loyal customers. What they are doing is allowing people who sit behind desks dictate and choose what is carried in their stores rather than letting the stores have inputs or asking their customer base before an item is remove or replaced by another. How hard is it to put up a notice about a pending discounting of an item and see what customers think. When you ask about items that have been removed, you are told that it was a "corporate decision" to do so. This is all being done so that all the stores are set up the exact same way and aren't carrying a good selection of items like they used to, but this way the inventories are standardized and you can go to any WalMart and not find what you are looking for!
9-13-2007 @ 4:35AM
william said...
To Nancy your walmart is just like mine and it is a shame. try this out go to walmart, stand in front of the building and look up. those cameras are not there for your security but walmarts. now that china is making their own cars it wont be long before walmart has a carlot on their property.they dont care about american goods or americans its all about filling their pockets with our money.
9-13-2007 @ 6:49PM
betty said...
lots been say about walmart .yet people who say it still shop there for there products .if you dont like the product .go to head of the complain deptment and voices your complain .also no one makes you buy the product .aso theres a return policey .walmart job have help lot of people have job .where the werent none .
9-14-2007 @ 5:00AM
Jackie Taylor said...
I shop wal-mart maybe once every 6 months and that is only because I need to get a certain type of electric razor blades and only wal-mart carries them... I shop target for all my bathroom needs and kitchen needs... I even purchase some clothing items once in awhile at target... never at wal-mart because of the quality of the merchandise.. This new ad they have running... I wonder if they have checked the prices lately .... Shop targets ad and you can save as much or more than any wal mart store... Thanks