Scott: Rollbacks Trump Gas Hikes
Wal-Mart’s CEO Lee Scott is keenly aware that the price of gas has hit an all-time high ($3.015 per gallon, according to the Lundberg Survey).
Even with gas prices moving higher (up nearly two cents in the past two weeks, according to Lundberg), Mr. Scott is confident in his company’s ability to continue achieving growth in its core categories.
Mr. Scott’s confidence is largely rooted in his belief that what has made Wal-Mart attractive to so many will become even more important to a greater number of consumers.
Wal-Mart, said Mr. Scott, will do “what we’ve been doing for years, sell for less. As the customer pays that price for petroleum, energy, they have to save money somewhere.”
As a report by Bloomberg News points out, however, not everyone is as confident as Mr. Scott in Wal-Mart’s ability to keep growing its business considering its core customer is hit hardest by rising prices at the pump and elsewhere.
David Abella, an analyst at Rochdale Investment Management, which owns shares in Wal-Mart and Target, said the average Wal-Mart household earns about $40,000 a year compared to $55,000 or more at Target.
The more affluent consumer base at Target, some say, puts it in a better position to weather steep increases in energy costs.
Wal-Mart, for its part, has begun targeting more affluent consumers with a focus on trendier and higher quality merchandise, without abandoning its “sell for less” heritage.
An example of Wal-Mart’s commitment to attracting more affluent shoppers is its new multi-million dollar ad campaign for organic foods using television, radio, print and online media. The campaign — “Introducing Organics at the Wal-Mart price” — makes clear that, while the retailer may be entering a new product category, it isn’t abandoning what has made it successful to date.
Janel LaMonica, VP-creative director at Bernstein-Rein, the advertising firm that developed the organics campaign for Wal-Mart, told Advertising Age, “This is an awareness message, but we didn’t want to downplay price because it’s one of the key barriers to people buying organics because they don’t want to see their grocery bill skyrocket. The two barriers to organics has always been one, finding it, and the other, affording it. Wal-Mart has taken down both these barriers.”
Discussion questions: Has Wal-Mart found the right mix of price, product quality and marketing message to expand its customer base without abandoning
it core? What are the most significant impediments to Wal-Mart’s goal of expanding its customer base and capturing a greater share of total consumer expenditures in retail outlets?
Woe, woe, woe ye naysayers. Lest we forget that the oil that makes the Bentonville machine run is information, data and analysis. District by store by department by sku, the data rolls in by the minute at a granular level. Armies of vendors on Retail Link are tasked with busily watching, adjusting and replenishing stock day by day, store by store, sku by sku.
If the local demographics support higher end “Targetized” positioning of product, in it goes and out it sells. If demand for those same products is not there in a similar store a few miles away because the customer base is different, the assortment is readjusted.
Wal-Mart’s gonna do just fine. You fish where the fish are.
Mr Sam’s model of getting smaller and growing larger at the same time works. Store by store, day by day, sku by sku, measure/test, measure/test.
Rather than hype Organic foods to lure some potential new shoppers (how many is truly debatable) Wal-Mart needs to make sure their core customers won’t abandon the ship. Rising fuel costs have made this customer combine their shopping trips or eliminate them all together. The emphasis for WM should be to make sure that when their customers are out and about that they go to WM. Hammering home the point that WM is the one-stop-shop you can’t pass up can’t be stated enough.
Two themes at last weeks “Shopper Insights in Action” conference were the impact the continued segregation of consumer income groups is having on who shops where and the implications of that in terms of how retailers can grow sales.
On the first point, the net is that the higher income consumer group is continuing to shop multiple channels while the lower income group is cutting back to their core. In both cases, I’d say Wal-Mart wins.
The second theme implies that you have to sell more to the shoppers in your store. The days of trying to get everyone through the door are over. To that end, Wal-Mart (who continues to attract both the lower and higher income groups) is trying to sell incremental “upscale” purchases to the higher income group. Don’t know if it will work of course — but seems logical enough in that light.
We could see a trickle down effect in the making. With these rising costs, Target should be somewhat concerned with the possibility of losing customers to Wal-Mart.
Rising energy and gas prices are hurting the typical Wal-Mart customer, but I don’t see many abandoning the Wal-Mart ship. On the other hand, many of Target’s less affluent customers could make the switch and the higher end merchandise and organic food products could ease the transition. Either way, I am very curious to see the results.
Wal-Mart has scaled a gigantic retail mountain and done it as well or better than anyone else had ever done it. Kudos to Sam Walton and his resulting and skilled Bentonville Bunch.
But now that Wal-Mart is on top of Price Mountain there isn’t any sure footing left for them to climb farther up on. By reaching out to upscale itself when their base of confirmed customers are totally “price captives” further strapped by the rising fuel and energy costs is much like grabbing for air when you are falling.
So I would say to a pressured W-M, recognize that you are a mature company, stick to your disciplined low price, sourcing and store expansion formula. Don’t try to be a Target too.
I think Wal-Mart is sitting in a good spot. Low income people have to eat, buy clothes, etc., like everyone else. With Wal-Mart’s low prices, they will be even further motivated to shop at Wal-Mart. Target’s customers are the credit card millionaires who I think will be the most squeezed. They can’t avoid higher gas and mortgage prices, but they can avoid Target. In order to maintain their lifestyles, Wal-Mart is a good alternative to Target. I’m seeing more and more high-end vehicles in Aldi’s parking lot these days. Even Aldi is more more upscale with its offerings.
Five years ago Wal-Mart stock was $55. Two years ago it was $54. A year ago Wal-Mart was $49. Today it’s around $44. The trend is not their friend. Wal-Mart is a maturing company, not a fast-growth company. They’ve got great market share, but their customers are the most hit by gas, mortgage, and credit card increases. Organic foods are fine, but Wal-Mart is unlikely to upscale themselves enough to reverse their domestic growth trend. Why not just maximize the profitability of their current positioning?
It’s interesting to see how companies like Wal-Mart value their customers- or in some case not value them.
I read where where Meijer Superstores, which competes with Wal-Mart in many markets, recently launched a new program where they inform their customers of raising gas prices before they actually go up. And they invite them to purchase before the increase goes into effect! Now that is a unique and customer focused service. What a paradigm shift in thinking! Maybe one of the reasons Meijer can continue to see growth and Wal-Mart as suggested by a previous comments sees a declining share price and market share trend.
I don’t shop at either store — don’t live near a Meijer and no interest in my local Wal-Mart product — but I would reasonably guess a Meijer shopper feels a better connection, more taken care of and and more loyalty towards Meijer, than a Wal-Mart customer feels toward Wal-Mart.
There is nothing in the data or the analysis to indicate WM is in danger. As to losing their core business, not only has no data been mentioned in the press articles alleging this trend, but I have seen little in the marketing to presage such a development. The upscaling of apparel and home has been done the WM way. Metro 7 really is the same WM message: sell for less. In this case, they are offering trend interpretation and fashion-ish merchandise for less. No deviation there, just a reinterpration at the product level — which is dynamite for the future.
Discretionary purchase categories always suffer during difficult times. It has yet to be proven that the gas and interest rate hikes have created “difficult times,” and for which consumers. Assuming that a mentality of difficulty is emerging, the data over many years across all retailers is very clear. Less affluent consumers have less discretionary income…so they cut back earlier and to a greater degree than other groups. However, the home market dynamics have indeed produced another early-cut back segment: the over-mortgaged. As has been noted, this group, despite its gross income, has as little or less disposable income than the first segment noted. They too will cut back.
The trend in times like these has always hurt the retailer with effectively the same commodities who competes on shopping experience, rather than price and assortment. Shopping ambiance is a “need” of good times, not of budget strapped times.
I too would tend to see a greater danger to Target than to WM.
People who drive those SUVs might find Wal-Mart a good place to make up some of the lost fuel income. Then there are high income people with high income tastes who might be retiring.