Last Updated Jun 10, 2010 5:28 PM EDT
In high fashion in Walmart is barking up the wrong tree; the people that want to buy high-end clothes simply aren't that store's core customer base. Says one analyst in RetailWire:
Wal-Mart's approach to apparel is consistent with their overall approach to merchandising under John Fleming, with an emphasis on an overall attempt to... gain market share with that higher-income customer. The decidedly unsexy truth of the matter is that Wal-Mart is best at selling large quantities of commodity products in apparel to a decidedly basic core customer segment that is looking for price, quality and brand (brands where they can get it) and in that order.Says a New Jersey stock broker in another RetailWire piece (subscription required): "I really hate shopping in the store because the lines are always too long at the checkout," but he concedes he goes anyway because "the prices are so low on groceries." At best, in-and-out shoppers who hate their experience in a store certainly aren't going to stop and browse for clothing. At worst, they don't go at all.
Walmart's strength has always been the mid- and low-income customer. According to WalMartWatch, the retailer has built 50% more stores in low-income areas than high-income areas:
The median number of residents per one Wal-Mart store in the poorest counties is 53,971. In the wealthiest counties it is 149,889. Therefore, Wal-Mart's saturation rate is almost three times as high in the poorest counties.The fact is, this model works for Walmart. But it can't hope to expand and poach high-end customers with a shopping environment that they wouldn't normally (or happily) visit in the first place. And it can't change that shopping environment without alienating its present base.
Walmart has responded to the high-income conundrum by turning its focus to foreign stores. But it shouldn't be so quick to abandon monied U.S. buyers. Instead of packing up and heading overseas, Walmart should court the high-end buyer with high fashion in the place where it can still offer its trademark value proposition -- low prices and selection -- without all the distastefulness of its actual stores: online.
In electronic retail, much of which is driven by shopping engines like Google (GOOG) Shopping, all sellers are created equal (and presented that way). What matters isn't the environment, the store, or the characteristics of the other shoppers; no, online retail is all about the bottom line -- and that's exactly where Walmart can win. Collections that have fared poorly in Walmart's brick-and-mortar stores -- L.E.I., Starter, OP, Danskin, Norma Kamali, Miley Cyrus and Max Azria -- could gain new life if positioned as online-only selections. Walmart has responded to its present failures by vowing to go "back to basics" like t-shirts and jeans, and that's fine for its physical stores. But that's leaving a lot of money on the e-table.
Exploring high-end online sales is also a low-cost way to test the appeal of new brands; underperformers can be cut easily and new brands added just as quickly. More generally, it's good sense for Walmart to put more energy into its Web store no matter what the initiative. Every year new statistics come out about the precipitous increase in online shopping, and that's not even accounting for the explosion of online shopping on high-end smartphones. The way to reach that high-income but cost-conscious customer is the Web, and particularly in 2010-2011, the mobile Web.
But Walmart doesn't have to divide its customer bases by rich (or online) and poor (or offline). Instead, it can make the relationship between its website and its stores vertical and aspirational. Right now, broadband penetration is much higher in high-income areas than in the low-income areas that house most Walmart stores, but the latter areas are becoming more connected every year, especially as more and more people of all socioeconomic classes migrate to smartphones. The goal for Walmart should be to encourage its brick-and-mortar customers to go online when they want to buy something upmarket, and drop into the store when they want staples.
For Walmart, it wouldn't be a hard sell: the benefits of shopping online will make themselves apparent soon enough as its customers become more online-savvy. And in fact, Walmart is already working towards this end, albeit unintentionally. The NYT reports that the retailer has undertaken a massive online education initiative for its employees by partnering with American Public Education, a for-profit and Web-based education company. By offering educational courses to its employee base, it's encouraging 2.1 million of its own target demographic to head to the Web.
It's fine for Walmart to continue to pursue its overseas options; every market is worth exploring. But in its current state, it has more to learn from agile online megastores like Amazon (AMZN) than it does from the anachronistic retail model that has made stores like Sears (SHLD) slow movers by comparison.