Walmart Finally Dances With the One That Brung It, Its Core Customer
So, Walmart (WMT) has figured out it's never going to be Target (TGT), and now it can get focus on finding a growth strategy that can work, one predicated on winning more sales from exactly the same kind of shoppers that always have favored its stores.
The affluent shoppers Walmart has aspired to serve don't mix well with its core customers. Well-to-do shoppers like stores to be neat, clean and a little stylish as they shop for things that will make life a little nicer. Walmart's core shopper prefers abundance, bargains and traditional looks as they shop, determined to get by on the week's paycheck with a little money left over. Walmart and Target rake in billions side by side when the difference between them are, let's face it, of little substance except on price. Other such pairings exist in retail, and sometimes in the same retail company, as in the case of T.J. Maxx and Marshalls, both operated by TJX (TJX).
As recently as its annual meeting, Eduardo Castro-Wright, then CEO of Walmart's U.S. division, touted a more-discounting strategy. The idea was to make it as difficult as possible for affluent consumers who had traded down in the recession's scary depths to justify returning to their old retail haunts. Now he's off running Internet initiatives, and a guy with an operations background, Bill Simon, is in his place. That's critical because Walmart's everyday low price strategy builds upon continual improvement in operations. By reducing distribution, inventory and related costs, Walmart can profitably undersell competitors across the board. Then, the company has a unique proposition to consumers that's not confused by rollback discounts that make it seem like any other retailer.
Walmart has taken steps to more effectively pursue its core working-class shopper by redoubling efforts to penetrate urban markets, its last great reservoir of potential customers. By pushing into cities such as Chicago, the retailer will draw customers who will welcome it even if some of their fellow city dwellers -- of the sort that don't like to shop Walmart anyway -- object to its presence. Walmart's initiative to get into cities at a time when cheap merchandise and retailer jobs are welcome was its smart recession-era initiative.
What turned out to be not so smart was trying to turn it into a more middle class-friendly retailer. In fairness, that move had roots that well predated the recession. But a mid-decade fashion initiative failed. More recently, the company's recasting of stores to reduce clutter and create more stylish displays, while providing a lift to home and electronics, failed to hold down trade-down customers.
Ex-Target exec John Fleming, who recently departed his Walmart chief merchandising officer post, may be blamed for the failure to win sales with affluent consumers. Yet Walmart's entire executive suite has to shoulder some responsibility for focusing on new customers when it could have been working to better serve its traditional customers in more ways and places.
A return to big, bulky "Action Alley" displays in main store aisles will be conspicuous among Walmart's planned retro changes under Simon. They not only make bargains conspicuous, they remind core shoppers that they are in the right place to stretch their paychecks.
Walmart's desire to win more upscale customers began as Target started posting better sales earlier in the decade. Target, a far smaller chain operating in fewer markets, had better growth prospects in front of it.
Through its recent difficulties, Walmart seems to have learned some valuable lessons. Besides taking a bead on urban markets, it has launched initiatives to better serve Latino consumers, many of whom are in its demographic wheelhouse. Mainstream U.S. retailers have mixed results serving Hispanic consumers, yet the fact that no other major chain has become a dominant destination for Latinos makes a trial of the group logical. Eventually, the kind of growth Walmart needs to sustain it as a publicly traded company must be found internationally, but, until it is ready to shift its major growth efforts to the global sphere, the traditional, lower income consumer remains the retailer's best bet sales improvement.