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[15 comments]

BrainTrust Query: Dropping the Floor, Raising the Roof, and Recalibrating the Brand Continuum

December 20, 2011

Through a special arrangement, presented here for discussion is a summary of a current article from the newmarketbuilders blog. The article first appeared on the Licensing Industry Merchandisers' Association (LIMA) blog.

In a presentation in Bentonville last month, Walmart's EVP and chief merchandising officer Duncan MacNaughton reiterated Walmart's plan to apply a "broad application of price investments" that will amount to a $2 billion everyday low price insurance policy.

Tough markets call for tough measures and everything is a race to the bottom, right? Not so fast. As Walmart takes pains to buttress its low price floor, it is simultaneously raising the roof by adding a tier of higher-priced items that push historic limits in select categories. Mr. MacNaughton noted that cash-strapped consumers don't always favor a steady stream of cheap, throw-away stuff, and in fact often prefer to make select investments in high-quality, durable goods.

On the heels of its first quarterly comp store sales drop in the U.K. in 20 years, last month Tesco announced its "Big Price Drop" initiative as a component of its strategy to get the retailer "back on the front foot." A contrasting component of Tesco's seven-part strategy, unveiled in May of this year, is to increase the global retailer's appeal to aspirational shoppers, even as it makes unprecedented cuts. This is because, according to Tesco chief executive Philip Clarke, "as people develop higher levels of disposable income, they want to treat themselves."

The media have been all over the sometimes baffling bifurcation in retail that has luxury brands such as Burberry and Prada thriving along with deep discounters like Aldi and Lidl, while middle-of-the-road players like J.C. Penney struggle. In response, retailers are building bigger gulfs between "good" and "best" within their widening "good, better, best" continuums in order to capitalize on contrast and skim from both ends of the spectrum. This expansion doesn't stop at price, however. Retailers are exercising new brand options as well. Private brands are no longer retailers' default choice at the lower end, and the fate of national and licensed brands is no longer determined by price alone.

Although Walmart manages some of the most recognized private brands in the world, including George and Great Value, Mr. MacNaughton says that Walmart considers itself a "house of brands," and again sees national brands such as Levi's as critical to establishing authority in key categories. In his presentation, Mr. MacNaughton cited a licensed program with Hello Kitty as an opening price point back-to-school stand-out, proving that private brands aren't the only value option, even for a mass retailer like Walmart.

As retailers attempt to push the limits of both floor and ceiling, their brand houses are becoming bigger and more diverse than ever before.

FINANCIALS:     [NYSE:WMT]

Discussion Questions:

Discussion questions: Is the push for low prices ("good") along with a goal of retaining aspirational price points ("best") squeezing out the "better" segment in many categories? How should national and licensed brands approach retail's increasingly bifurcated pricing strategies?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

Do you agree that the push for low prices along with a goal of retaining aspirational price points is squeezing out the 'better' segment in many categories?

Comments:

Duncan MacNaughton is exactly right that Walmart is a house of brands and should carry all the brands that consumers want, including brands that are premium, specialty, niche, etc., even if they are "high priced." It is good business for Walmart and every other retail chain to consider these destination opportunities for incremental profitability.

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David Biernbaum, Senior Marketing and Business Development Consultant, David Biernbaum Associates LLC

I can't point to one single successful company, in the history of retail, that has appealed to both the discount and luxury segments at the same time and lived to talk about it.

Furthermore, Walmart is no more a "house of brands" than Louis Vuitton is the dollar store. There is only one "brand" at Walmart and it's WALMART.

The truth is, Walmart itself, as a concept, has become the middle and there are fewer and fewer customers there to sell to and ironically, it's Walmart itself that is partly to blame for that. After all, Walmart grew on the gutting of American manufacturing.

I don't think there's a real strategy here. Just a desperate company, trying to pick up whatever scraps it can to stay alive.

Doug Stephens, President, Retail Prophet

With the media, retailers and brands all focusing on extremes -- either low, low, lowest prices, or investing in quality and prestige, there is little room or interest in anything in between. This trend is destined to become stronger than weaker and most brands must choose to which extreme they will gravitate. Retailers must similarly position themselves or risk being ignored.

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Mike Osorio, Senior VP Organizational Change Management, DFS Group

Customers continue to need "good," "better" and "best." However, as most retailers don't have very high resolution customer-based insights they can only make decisions using 2-dimensional product and financial data. With only these metrics available, it's often easier to perceive value creation at the ends of the spectrum than in the middle.

Only when both the retailer and brand owner have a shared understanding of who is buying which products over time, the associated sales and the impact of price and promotion on the customer's choices can you get these decisions better or best!

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Matthew Keylock, Senior Vice President, New Business Development and Partnerships, dunnhumbyUSA

Retailers are making a flawed assumption -- that the same consumer is shopping at both ends of the spectrum. I can't think of a retailer that has a positioning suggesting both are appropriate.

What the article doesn't state is whether Walmart's pricing of higher tier items will still be lower than other competitors'. Assuming this is true, it's not a pricing move or an appeal to aspiration -- it's broadening their selection. If I find better pasta sauces than mainstream products (Ragu, Prego, etc.) at a good price relative to grocery, I'm there. If they sell Levis cheaper, I'm there too.

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Dr. Stephen Needel, Managing Partner, Advanced Simulations

In what universe do we think that just because Walmart does something it's the right thing to do? Not this one.

Doug's comment about Walmart as a "house of brands" is pithy and made me smile. But I also don't believe that Walmart's private label merchandise is all that, either. That's part of the reason Project Impact failed.

I understand the "hourglass effect" (which is what Deborah Weinswig of Citi calls the bifurcation), but let's also recognize that Macy's is doing pretty well, and supermarkets are doing well with premium private label.

Walmart will find itself discounting and discontinuing its high-end product, because...well...the high-end shopper really, really, really does not want to shop in that store. It's no more complicated than that. The lesson for other retailers is as it always is -- stick to your knitting and understand (and listen to) your customer, and you will succeed.

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Paula Rosenblum, Managing Partner, RSR Research

Working the "good," "better," "best" merchandising strategy is one that can be played on select merchandising lines. It will be far too complex to provide it across all brand segments.

Walmart is positioned with a box and buying power that permits them to play this game. It's a strategy that smaller, more nimble retailers with fewer doors can choose to play in selected departments -- e.g. -- Nordstrom with shoes, Kroger with select meat grades, etc.

While Walmart is a "house of brands," no one organization is going to be "all things, to all people."

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Roger Saunders, Managing Director, Prosper Business Development

One of the best parts of the club store shopping experience is the "wow" factor of finding things that are not necessarily on the list or an expectation. As Walmart salts in brands that are perceived as "better than," it raises the bar for the entire shopping experience and makes the entire experience regardless if those items are purchased an attribute to the retailer in general.

Charlie Moro, President, CFS Consulting Group, LLC

Costco is probably one of the better examples of balanced pricing. They are neither "cheap" nor "expensive" but their promise to the consumer is that, whatever you buy, you'll get great "value." In these tough economic times, customers are mostly looking for "value," at any price point.

Fabien Tiburce, CEO, Compliantia, Retail Audit & Task Management Software

In a time of financial insecurity, customers are looking for a great deal...and a great deal may not be the lowest price, hence the rise of club stores. I really think that retailers would have an easier time making determinations about who buys what if they would spend more time in the store....

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Cathy Hotka, Principal, Cathy Hotka & Associates

Seems like we're starting to come full circle in the world of retail -- especially where Walmart is concerned. From Project Impact back to EDLP and now heading towards the good, better, best (eventually) equation, anyone in this space will have "seen it all" soon enough.

Retailers, including Walmart, have no choice but to at least continue exploring various levels of price offering if for no other reason than to potentially capture a new audience in the years ahead. Not all consumers needs and wants are created equal. Additionally, with the rise of digital shopping the traditional equation may no longer be the best equation. The retail landscape has changed and continues to change and I applaud any retailer that's willing to take a risk and explore new waters.

Hayes Minor, Director, Strategic Planning, MARS Advertising

I believe that with retail segmentation, this approach is possible.

Not all retail locations serve the same consumer, and some will favor premium brands in the aisles in the same way some favor bargain and fighter brands.

The segmenting approach is already used by department store chains; I don't see why it can't be used by mass merchandisers to make every location more appealing to its RTA.

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Carlos Arámbula, Managing Partner, MarcasUSA LLC

This is yet another example of a Walmart bifurcated strategy in an attempt to go after more than one market. First, Walmart was low prices always, then they tried being upscale, then they went back to "Save money live better," then they eliminated many brand name products, then they brought them back when consumers complained. So who now believes that Walmart is a house of brands? So who believes that Walmart is anything besides low prices? Why does Walmart continually try to change its core competency and the image they worked so hard to create in consumers' minds? Why not take their strength and build on it?

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Camille P. Schuster, Ph.D., President, Global Collaborations, Inc.

To Doug's (implied) challenge I would offer up Gimbels; yeah, yeah, I know, Gimbels itself isn't around any more, and Saks and Gimbels obviously operated under separate nameplates, but I'd say 60 years was a pretty good run (and we could easily argue that but for BATUS' inept [mis]management they'd still be around).

That having been said, I agree that a poverty/luxury mix within a SINGLE name makes little sense. But is that really what we're talking about here? A (slight) broadening of price points would hardly seem to make a retailer "bifurcated"...when Walmart introduces valet parking for their fur salon, maybe we can talk.

'notcom'

Remember that the changes we are seeing in customer behavior reflect a general average customer -- one that does not exist. Customers are not averages -- they represent specific combinations of preferences by category.

The key to surviving in this environment is to focus on building and reinforcing values with the right customer segments. You cannot market the same to everyone -- channel preferences permit you to more narrowly target the right customers and measure the impact.

By targeting the right customers for retention (the 20% that comprise 80% of your volume), marketers can retain their value in the face of retailer pressure to cut prices, reduce margins and succumb to commoditization.

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Mark Price, Managing Partner, M Squared Group, Inc.

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