Wal-Mart Builds to Suit
Attention African-Americans, Hispanics, empty-nesters, the affluent, those living in the suburbs and others living in rural areas: Wal-Mart has a store just for you.
The world’s largest retailer is throwing away its cookie cutter to make stores more responsive to the needs of consumers in local areas.
In a store in Evergreen Park, Ill. that serves a large African-American customer base (many come from Chicago, which has no Wal-Marts), the retailer expanded its men’s apparel section by 30 percent and moved it to the front corner of the store. The section is stocked with baggy jeans and sports jackets popular among African-American men in the community.
Eduardo Castro-Wright, chief executive officer of Wal-Mart’s stores in the U.S., told The Wall Street Journal, because so many Americans (85 percent) shop in the company’s stores, it had attempted to become “all things to all people.” As a result, said Mr. Castro-Wright, “you end up under-serving everyone because you don’t have an offering that is specific to that customer segment.
“I think we can address specific customer segments with a precision that better meets their needs and wants,” he said.
To be certain, the task facing Mr. Castro-Wright and Wal-Mart is huge. The company plans to switch most of its 3,400 U.S. stores to the localized approach over the next year. While others, such as Best Buy, have converted to so-called customer-centric stores, none has had the sheer quantity of stores to deal with.
To help move the transition along smoothly, Wal-Mart has moved its 27 regional general managers from headquarters in Bentonville, Ark. to markets around the country so they’re closer to stores and consumers.
Todd Libbra, who manages 132 stores in Illinois for Wal-Mart, moved to a suburb of Chicago in July. “By reading the newspapers, watching the TV stations and being part of the community, I have a better flavor for what’s going on,” he said.
Wal-Mart is also looking to better focus its marketing on local needs. The company has increased the size of local marketing teams and given them increased authority to determine products to promote.
Chad Donath, marketing manager for the Evergreen Park store and seven others, found during a hospital visit that the area had a high number of babies born prematurely. Based on this knowledge, he recommended the Evergreen Park store increase items designed for premature infants. The result is that items such as baby-bottle nipples geared for preemies have been strong sellers.
Mr. Donath has also been allowed to take calculated risks he would not previously been allowed to pursue. For example, he recommended the Evergreen Park store increase its selection of gospel, rhythm and blues, and hip-hop music. The store’s music section is now 92 feet, almost four times the size of the typical Wal-Mart music section.
The results, said Mr. Donath, have proven worth the risk. “It’s unbelievable; sales are off the charts — no pun intended,” he said.
Discussion Questions: Moving the conversation beyond simply talking about Wal-Mart’s initiative, what are the keys to developing stores that truly meet
the needs of local consumers? Name retailers (regardless of box size or retail channel) that you believe do the best job of localized marketing?
One of the most interesting facts about the Wal-Mart store in Evergreen Park highlighted in the WSJ piece was that it is made up of a largely white
population. Wal-Mart chose to focus on African-Americans, however, when it determined these consumers, many traveling from Chicago, would be the store’s primary shoppers.
I’ve had one big concern about localized assortments. For a store like Best Buy, it makes sense. Most folks have no more than one Best Buy within reasonable or straining-to-be reasonable distance from where they live. That is “their” Best Buy.
Wal-Mart, on the other hand, with their stated intention to continue opening multiple stores within the same area, faces a possibly unanticipated hurdle. Living in Northwest Arkansas, I have my choice of multiple top-notch prototype Wal-Marts within miles of my office, home, gym, etc . . . these are the ones that carry the “latest and greatest” that Wal-Mart has to offer and, in an eat-off-the-floor environment, lovingly attended to by residents of “vendorville.”
So where’s the rub? My favorite upscale preserves (that I used to have to order on the internet) is carried in the one near my gym (only). My favorite tortilla chips? Need to go to Neighborhood Market (only) for those, I’ve learned. Want to check out that hot new young men’s urban line for a client? Trip to Fayetteville (only). “My” Wal-Marts (plural) all carry different assortments, leaving me loyal to none and going back to the Web when my travels don’t take me in the right direction.
For purposes of regionalization and localization, the 80/20 rule is firmly in place. About 80% of the assortment can be the same nationally since the basic needs of customers don’t really differ that much. But the world of mass customization revolves around that 20% that remains.
Wal-Mart’s concept of getting smaller while growing larger is actually the original formula. The idea that EVERY store should reflect the regional and local area, seasonality and timing was at the core of the national growth push that began in the early 90’s. New stores were localized down to the zip code since a store on one side of town can have widely variant traits and characteristics in its customer base.
While steady, rapid growth has been ongoing, and the localization focus may have broadened a bit, a renewed effort to refine ever-changing assortments is really all Wal-Mart is doing.
This is a very significant change Wal-Mart is making and for them to pull this off means they will have to dramatically alter how their entire company is run. Their store personnel are very skilled at taking orders and executing a game plan, however, they are not skilled at finding ways to merchandise. For Wal-Mart to go down this path, they will have to change the way they develop and train store managers. This is huge, since it will also mean they will need to begin hiring people who fit a different profile and since they’ve already admitted they have a hard time finding quality people, it can only mean this task is going to become more difficult. What we’re continuing to see with this move is the continuing evolution of Wal-Mart to try and find ways to grow sales at a time when their stores are becoming tired and the competition is learning how to compete against them. This merely becomes another indication of the dire situation Wal-Mart is finding themselves in.
All retailing is essentially a local phenomena. The key for Wal-Mart and any retailer for that matter, is to get the mix of standardized versus customized offerings correct while balancing market needs and maintaining supply chain efficiencies.
What I like about this article is that Wal-Mart, despite its market size and strength, is constantly seeking to “attack itself” and avoid the complacency that so many formerly successful companies seem to suffer.
Tuning a store’s assortment and presentation to the local market environment obviously makes sense. The key questions are “to whom in that market do you tune to?” and “how much tuning is required?”
As George notes, the Evergreen area is predominantly white. Simply “tuning the store to the local demographic” would have resulted in a very different look. The key to success was the insight that the store was actually drawing from a very different demographic — and why. That type of knowledge cannot be gained by running the local demographics through a segmentation model. It requires boots on the ground…smart boots. Wal-Mart’s move to put managers in the local markets is a great start.
To the second question of “how much tuning is enough?” we would argue that tailoring the assortment in the top 5 departments in a given retailer can capture most of the available gains. “Tailored assortment” (not “assortment optimization”!) can generate significant sales gains.
Can you spell Best Buy? The mass customization of big boxes is tough — and a cynic might say wasted — work. Forget about the fact that the cohort selections are always more than a little arbitrary. [What do you do with affluent, empty-nesters who happen to be African-American?] When you customize, you immediately open yourself up for criticisms such as “They (retailer) don’t REALLY understand us (consumer cohort)” or “The stores they build for Cohort A are better than the stores they build for Cohort B.” And, the truth is, in most cases, the retailer doesn’t understand sub-segmentation well enough to make it work effectively. There’s also the problem of what this does to the macro-brand identity. If I expect to find certain things when I walk into a store, it’s a little tough to explain that they aren’t there because this is a store for “other people.” As far as Wal-Mart is specifically concerned, shouldn’t they have thought about this when they began opening Neighborhood Markets?
The more things change, the more things stay the same.
The early days of Wal-Mart were characterized by giving store managers the flexibility to tailor their merchandising to local market needs. As growth and centralization occurred, much of that was lost.
The Wal-Mart localization strategy, one suspects, (I haven’t read the WSJ story yet) is probably in part inspired by Best Buy’s Customer Centric strategy, where it defined a number of store meta-types based on location and demographics/psychographics (urban, soccer mom, etc.) and set up and merchandised stores in part according to that type. The early results, like Wal-Mart’s, were favorable, but I haven’t seen many details from the larger roll out.
Of course, a store tuned to local needs should do better than a generic format, almost by definition. The question with all these types of initiatives is how they will service the inevitable turn down or some mistakes by store managers, which will cause the central team to look to “take control, because we know better” again.
If a retailer can resist that central control urge and localize, while leveraging the efficiencies of a large organization, it can be very powerful, but it’s a hard act to maintain due to people issues.
Successful chain retailers often use modular menu assortments to customize their stores to local tastes. For example, Wal-Mart could have 3 different hunting departments: 250 square feet; 750 square feet; and 2,000 square feet. Depending on hunting’s local popularity and the season, the store layout could be any of the 3 menu choices, or no hunting department at all.
WMT’s growth rate has ebbed both domestically and internationally and it’s great to see that the matter is being addressed. It only makes sense that a new strategy be implemented to fully capture sales from WMT’s growing sectors.
Silverstone is right; WMT has long touted micro management of assortments, and had gone a long way to implement programs to delve into demographic preferences. Unfortunately, that movement got sidetracked.
The time is nigh. WMT must target demographic sectors that offer the strongest growth potential to get back on track. But for the program to be successful efficiently, without tearing apart the supply chain, it needs to be developed centrally with local managers serving as back up.