Wal-Mart Taking Hits Over Price, Selection
Two separate articles conclude that Wal-Mart Stores is having a tougher go
of it since the economy began to rebound, in part because it has gone too far
with its SKU reduction efforts and because a wide variety of competitors have
found ways to beat the world’s largest retailer on price.
A Bloomberg article cites a number of product categories, including
cereal, health and beauty care products, laundry detergent, pet treats and
soda. According to the piece, Wal-Mart cut inventories in its U.S. stores by
7.6 percent while increasing sales by 1.1 percent.
“Wal-Mart cut too deep and now they’re going back to manufacturers,”
Michael Kantor, chief executive officer of the Promotion Optimization Institute,
told Bloomberg.
“In some instances, we are returning SKUs to the floor; it is evolutionary
and ongoing,” said Linda Blakley, a Wal-Mart spokesperson. “Based
on customers’ response, we may return an item to the shelf. At the end of the
day, we want to have what she wants at a good price.”
Having a “good price” may not be good enough for consumers who have come
to think of the chain as having the best price and now learn that others may
save them more money.
Kantar Retail’s Management Ventures has been tracking prices on 40 items
sold in Wal-Mart and Target stores. Target has beaten Wal-Mart in two of the
three surveys taken to date. In the latest comparison, Target came in 2.5 percent
lower than Wal-Mart or $7 in real money.
Interestingly, 71% of respondents to a RetailWire poll last month said
their perception was that Wal-Mart’s prices were somewhat or much lower than
Target. Only two percent believed Target had better prices while 27 percent
thought the two chains were evenly matched.
Target isn’t Wal-Mart’s only concern. A recent survey by WSL Strategic Retail
found three-quarters of shoppers in dollar stores believe they are getting
better prices than if they shopped at Wal-Mart.
Burt Flickinger, principal of consulting firm Strategic Resource Group, said
he also saw Wal-Mart losing ground to conventional supermarkets who offer superior
selection and cut prices in key categories to drive traffic.
“The consumer has figured out that Wal-Mart’s prices are too high in key
categories. … The consumer is confused. When Sam Walton and Doug Degn [who
formerly ran merchandising for Walmart’s grocery products] ran things, the
consumer understood she would save in every category every day,” Mr. Flickinger
told Advertising Age.
Discussion Questions: Do you see Wal-Mart as being more vulnerable to
competition today than in the past? Where is its market share most at risk
and what will it need to do to address its weaknesses and the strengths of
its competitors?
“The consumer has figured out that Wal-Mart’s prices are too high in key categories.” I would challenge that statement. Wal-Mart owns perception of low price, dollar stores and anecdotal surveys notwithstanding.
I don’t see Wal-Mart as being more vulnerable. Target could have simply lowered some prices for the purpose of the article. A price check is just a snapshot and not the movie. Remember, Wal-Mart will ad match and it’s not long until Wal-Mart corrects any price disparities.
I won’t argue that dollar stores have lower prices but their selection is limited. The whole world knows that Aldi has much lower prices and Aldi loves opening in the out-lot parcels of a Wal-Mart because they have no fear of Wal-Mart. Wal-Mart can’t compete with them on price and Aldi parasites off the traffic they draw. If you want to do a price check on 40 items, I’m sure Wal-Mart will lose sometimes. If you do a price check on 50,000 items, my gut feeling is Wal-Mart will win.
So whoop-dee-do, Target might have some lower prices. What good is that for consumers who live out in rural areas where Wal-Mart is the only big-box retailer? Consumers vote with their dollars. What is the sales per square foot number of the grocery department at a SuperTarget compared to the grocery department at Wal-Mart? Wal-Mart is about double SuperTarget’s output. The highest volume SuperTarget is doing about what the average Wal-Mart Supercenter does in volume. WSJ articles are not going to change that.
Yes, Wal-Mart is more vulnerable to competition today than in the past because the supply chain efficiency driven by Wal-Mart is helping other suppliers and retailers also. Wal-Mart’s early mover’s advantage is beginning to erode as others are taking advantage of supply chain efficiencies.
Besides this, Wal-Mart never had lowest price across the board. Consumers were either not paying attention or were brainwashed! For years I had observed that some of the other retailers had better prices than Wal-Mart on many items. It does not surprise me that now more and more people are seeing this.
Price transparency is the hallmark of retailing in the age of mobile computing. That’s why EDLP is a dying quail as a price strategy. There are no longer any secrets and EDLP does not engender trust. Tailored promotions are much more interesting.
The truth is, Walmart has been vulnerable since 2005, since other retailers figured out that customer-centric initiatives really matter. Last year SHOULD have been Walmart’s time, but it turns out it wasn’t. Why? Lack of innovation really, and despite pitch-perfect advertising, a lack of a compelling value statement.
There’s another issue–Walmart may well have saturated its market, particularly in the US. Its recent announcement of the regionalization of real estate to “find locations in seemingly saturated markets” is a real red flag to me. It means the company will have to work harder to keep existing customers, with not-too-much likelihood of acquiring new ones.
Walmart has put itself in a tough position. The dollar stores, like Family Dollar and Dollar General are less expensive on most items when compared to Walmart. And they now carry many of the major brands, with products produced specifically for this low-priced channel. Target has a higher perceived quality, and a greater perceived selection, along with a better shopping experience than Walmart, which places Walmart right in the middle.
Being in the middle is a very tough position in which to be, and a difficult position to defend. Interesting how Walmart has boxed themselves in this way. Should we count Walmart out? I hardly think so. But it does show how they have lost their way a bit. They need to rethink their strategy, and figure out what message will best resonate with the consumer.
Target’s pricing had nothing to do with the article. The research referenced here included three separate surveys conducted six months apart. While there may be other explanations behind Wal-Mart’s recent numbers, it is at least plausible to suggest that low prices may not be as big a given as in the past.
The other point relative to price is bound to selection. If a consumer can’t afford to buy a bigger item even if it is a better deal on a per unit basis, than the most affordable price wins. Dollar stores, for example, have found a niche selling smaller pack sizes even as other stores continue along with CPG brands to promote larger sizes.
I don’t see Walmart as being particularly vulnerable for a few reasons:
1. International presence and diversification. Walmart’s international growth is currently offsetting domestic dips. Target is still make-or-break in domestic markets.
2. Newfound nimbleness. I have heard that Walmart is concerned about going “ditch to ditch” on rationalization; however, course corrections will be relatively easy to execute. Buy more.
3. Dollar stores and hard discounters are not a new threat and there have always been shoppers for whom Walmart is a luxury; Walmart is by no means the bottom of the barrel and they have not positioned themselves to be. For some shoppers, the tiers start with garage sales and flea markets then move up to dollar stores and to Walmart for special occasions.
Target has done a terrific job of shifting its messaging to value both in-store and in national marketing and their new focus on food is obviously paying off in more traffic and encouraging shoppers to look around a bit more. After waves of restructurings that will impact every aspect of Walmart’s operation from sourcing, to online, to in-store marketing, I believe that Walmart may be getting its sea legs back in short order. Counting them out would be foolhardy.
Not being a retail guy, I’m not sure if people really compare prices for every item. But I do believe that perception is a big factor. If people no longer perceive Wal-Mart as having the lowest prices, then they will be more inclined to look elsewhere. Are better prices really out there? Or does it just appear that way?
It’s “MARCH MADNESS” time, and everybody is interested in knocking off # 1 … and we’ve all been admonished to that. It is, at times, more difficult to remain on top, than to get to the top.
Walmart will find challenges that have to be addressed if they are to maintain their growth trajectory of customer counts, sales, and earnings. They have the perceived position of being the price leader. However, they are savvy enough to know that the consumer is making decisions about which retailers patronize on far more than price alone.
Selection, location, quality, service, advertising, delivery, financing, in-store, trustworthy reputation, and numerous other points enter the equation. Walmart cannot fight the battle on every front. They, like every other retailer, have to “focus on the few” key items on which they must execute, in order to protect and grow their consumer base.
Competition will always be kicking at the Walmart door. And Walmart is aware of that fact. Don’t bet them out, just yet.
This discussion is timely for me as I travel North America visiting top supermarket retailers to discuss programs that can help them compete with Walmart on price. The great news for traditional supermarkets is price is not the only factor Walmart needs to be concerned with over the next few years.
1) Pricing – Several retailers beat Walmart on pricing across multiple categories. HEB is probably the best example.
2) Experience – Stores that have focused on shopping experience will benefit as the economy improves. Visit a Hy-Vee, Meijer or Stater Bros. and you will see what I am talking about.
3) Sourcing/Quality – All retailers need to be careful of this. Just look at the Walmart brand cat food Special Kitty’s recall as an example of price effecting quality and safety. The scariest part about that recall is the Ontario based manufacturer for that brand, Menu Foods, actually was a contract manufacturer for over 150 PL and national brands. (Source: “Cornered” by Barry Lynn)
4) Private Brands – When a retailer makes an outstanding private brand that can compete with national brands it is truly a barrier of entry. Great example is Trader Joe’s and Ahold.
5) Consumer Programs – There are some exciting options available now to retailers that can help them drive prices down for shoppers and still make money. Retailers and manufacturers need to keep an open mind and explore new ways of working together creating a win, win. Not to mention a 3rd win for the shopper.
So yes, after visiting some of the best supermarket and drug retailers in North America, I can confidently say that Walmart should be concerned about competition. The warning to other retailers is this: Walmart can easily improve all of the areas above. Your goal should be to focus on the areas that mean the most to you and your shoppers and don’t be one of the best, be the best in your market.
Did Wal-Mart go too far in SKU rationalization? Of course they did.
Why? Because you can never know for sure how far is right until you go too far. Then you adjust.
This is classic Wal-Mart. Push the limits, either through testing multiple concepts or implementing in-store experiments with things like in-store TV. Read the results fast and react accordingly. That’s why they are at the top of the retailing world. And as long as they don’t change either that management practice or their single-minded focus on lowest prices every day, they will stay there.
Walmart prices too high? I’m not sure I agree with that statement and it seems to be a generalized opinion. Successful retailers are the ones that can quickly adapt to change. Walmart has proven time and time again they they can make changes on the floor very quickly. You pull some SKUs off, and then bring them back. That’s what retailing is all about. My crotchety mentor always used to say “The only constant in retail is change!”
When one recalls all the great retailers in the past with #1 market share who no longer last it encourages speculation that Wal-Mart too could become vulnerable.
Today, Wal-Mart has many retailers trying to find ways to keep up–and successfully compete with–WM’s pricing model. Today WM is not always the lowest price on many items and their like-store sales aren’t in a zenith mode.
If the economy gets better–if, if and if–some customers will return to more congenial retail habitats, and that could raise concerns in Bentonville. But ol’ WM still has a lock on the “price” image and that is today’s greatest drawing card. All WM has to do is keep its price edge and work to improve its in-store experience, i.e, East is East and West is West, raising the question: Will the twain ever meet if future days allow for more discretionary spending?
Walmart has always been higher than Target on some items, which Target people are happy to point out. Recession-era shoppers who’ve sought out new sources of inexpensive merchandise have also found numerous venues, beyond Walmart. Anticipate lots of heated competition as retail pursues value-conscious consumers.
Walmart is more vulnerable now because consumers are more actively looking for savings.
The EDLP concept works great when a customer simply wants the lowest price and isn’t interested in the “gimmicks” of Hi-Lo pricing, loyalty cards, etc. What has happened over the last year is that consumers are realizing that if they “play the game” a bit, they can save some real money.
Coupon usage is up, customers seem to be looking for retail discounts more than they used to be and are willing to stock up or switch brands to capitalize on savings opportunities.
On top of this general trend of increased promotional impact, we’re also seeing the maturation of retailer efforts to leverage loyalty card data to personalize the experience for their customers and target them with incentives. All of this works against Walmart and their EDLP strategy.
I would be remiss if I didn’t point out that Walmart starts from an incredible position of price perception dominance and that’s not something they’re going to lose anytime soon, even if Target is cheaper on some items. We’re seeing a slight shift, but it will take a long time before you’ll notice any significant negative impact on Walmart’s business.
It has been my belief that there can only be one price leader in a category. In retail, Walmart is of course the leader.
The weakness in this strategy is that, if the price advantage is lost, secondary measures including customer experience and selection that influence purchase decision may not be in place to defend against competition.
Mr. Anderson seems to agree in his article, stating “Having a ‘good price’ may not be good enough for consumers who have come to think of the chain as having the best price and now learn that others may save them more money.”
If we can accept the research supporting the Bloomberg and Kantar Retail Management articles cited is truly indicative that Walmart is losing its perceived price advantage, then the chain is facing significant risk to Target and others.
I recently reviewed a survey taken among delegates to the Loyalty World UK conference this past fall and over 58% indicated that the key opportunity to improve loyalty strategy in the business during 2010 was through investment in customer experience.
Walmart should concentrate its efforts on reestablishing its leadership (real and perceived) in pricing but should take steps to enhance the shopping experience in-store as a measure to mitigate risk for the future.
What Ben Ball said!!!
Wal-Mart’s item selection was easy when Sam was running the show. All he stocked was the number one, two and three items in a category. He let the consumer decide what to carry. Today putting any item in Wal-Mart makes it number one in the category.
No question, Wal-Mart’s item rationalization was done poorly. They tried to get an Aldi product selection and it failed. Much of their price advantage was from advertising. It was never cheaper than a supermarket on special. Their two tier price strategy reinforced the image versus the supermarket higher markup on slower selling items.
Like many/most of the commentators here, I’m a bit skeptical of the claim, though I freely admit my bias going in; then again, what good will lower prices do Target–or anyone–if nobody believes it? They’ll simply be giving up revenue.
My instinct is that it’s much too early in this cycle to be drawing any significant conclusions. As Walmart concedes, their SKU rationalization program is an on-going process that’s really in its early stages. Others here today have pointed out that Target has been trying to cherry-pick prices for a while. And we still don’t know how those consumers who traded down to Walmart when the recession hit are going to respond when they begin to feel they no longer have to shop there.
Walmart doesn’t necessarily need to have the lowest prices. Instead, they need (and own) the best price perception. In my Wednesday newspaper (Best Food Day – BFD – ever wonder about those initials?), I always find price-oriented ad inserts for three of the major local supermarket chains. But not for the big guy, Walmart. That’s because WM is light on specifics and heavy on image, and it’s obviously worked for them.
Research over the years shows that, at most, shoppers can remember the prices of only twenty items. Most shoppers remember far fewer. When it comes to pricing in grocery, it’s the image that’s important, not necessarily the specifics. Ever see price ads for Aldi or Dollar-format stores? Rare if ever. Instead, they count on perception, not specifics. Extend that thought to conventional supers. When they advertise specials, are they saying “come get this special?,” or are they saying “we always have a lot of great specials?” Unfortunately, most conventionals predicate their marketing plans on the former, not the latter, and that affects their ad mix negatively. If a conventional wants a low-price image, then concentrate on that image and not so much on specific prices. If that’s not the conventional’s bag, then focus on the specifics.
Wal-Mart recently posted its first sales decline for year over year comparisons in their history. Albeit only .5 percent, it was a decline never before seen. Is there a chink in the armor or was it an aberration, pure and simple? If it could be covered up by adjusting the numbers–would it not have been?
The most price conscious consumer I know (Mrs. Scanner) tells me that Target has made real inroads into the market and among friends is gaining in perception. Target, along with others, is making a small dent in the price mystique owned exclusively by Wal-Mart for some time. Let’s see what happens next period or the next several reporting periods and examine what’s really going on in the marketplace. It may not be just price. It may be something more. We’ll see.
In the same period, Costco reported 8% same store sales increases. BJ’s Wholesale reported 7% same store sales increases. Most conventional supermarkets were in the 4% to 7% down range. They blamed it on continued deflation and market shifts. Wal-Mart doesn’t make excuses. Generally they continue on their path towards world domination regardless of bumps in the road.
In the meantime, will others figure out the formula that may have placed a small chink in the armor or not? If they do, they’ll find that price perception was only part of the battle. If we think that’s all there is, consider some other things. Consider Wal-Mart’s customer service scores in recent surveys where conventionals gained. Consider in stock positions on your next walk-throughs. Consider also category rationalization as mentioned. It’s never usually just one shot fired that wounds the enemy. The battle is usually won when all flanks fire at once.
Could be that next period they’ll post 15% same store sales increases and we’ll scratch the scalp some more.
If one dusts off the old scripts from seminars on how to compete with Wal-Mart, the concept of selling what they don’t have keeps popping up. Wal-Mart’s recent product strategies have made that task easier. Every time you remove a product, you have the potential to also remove a customer. A recent political editorial used the incremental quality reductions of Schlitz beer and its quick tumble in market share as people suddenly realized that they no longer liked the product. Wal-Mart, while looking at one metric (item profitability), forgot to look at customer profitability.
I also note the same too-smart-by-half attitude with some cellular phone companies who manage churn rates but don’t see nor manage the rising customer discontent.
All high growth retail must end as expansion becomes too cannibalistic to sustain, reinvestment can’t get by finance and profit growth can only be achieved through expense reduction. Overseas growth can keep Wal-Mart going another fifteen to twenty years and then decay will become readily apparent.
I see it as just making common-sense. Two years ago, the luxury market was booming and everyone was trying to get into the act. While Wal-Mart was struggling, trying to remodel stores and introduce better quality brands at higher prices which wasn’t the business they knew best. After the economic crisis, the tables turned and the customer liked the traditional price strategy of Wal-Mart, returning to the stores with competitors selling higher quality at higher prices trying to turn their strategy around.
Eventually retailers understand where the market has gone, either up or down and smart retailers respond accordingly. So sure competitors have caught up to Wal-Mart, while the retailer enjoyed a glorious year and a half head start.
Walmart has definitely become vulnerable to competition in several areas. Walmart has only price to separate themselves from other retailers. Regional and large grocery chains are beginning to reformat their stores to sell more general merchandise items. Walmart is very weak in perishables and perimeter departments. Grocery chains that are good in perishables are selling specialty items that Walmart does not carry and using these items to offset profit loss on GM items. Grocery retailers also have advertised specials as well as great prices on stock-up items.
Walmart made a big mistake a few years ago when they decided not to cut and process meat in their stores. I do agree that Walmart can adjust quickly to competition. A great example is what Walmart is doing to develop their Great Value brand.
People still perceive Walmart as having great prices. They also perceive Target and dollar stores as having great prices. I agree that Walmart was leading the way in supply chain optimization and that others have caught up, so that will have an effect.
However, what isn’t being mentioned is the shopper experience. Yes, the selection has decreased, but that is just the tip of the iceberg. The Walmart greeters used to be friendly, now they are kind of grumpy. The clientele look like the just rolled out of bed or prison. It’s becoming a joke. So much so, that there are websites and funny emails showing pictures of Walmart shoppers and how they are dressed. I don’t know how they fix this problem, but it’s not good for them and this is a common perception.
Nearby, I have a Target and I have a Walmart. A lot of people do. But most people don’t have a HiVee, Stater Brothers, etc; these are regional chains at best. Talk to us about Kroger or another wider-based retailer. Walmart is King and while its crown might get tarnished from time to time, it will be forever before another takes its place.
Anyone can target 50 or so items and lower prices to make themselves look a little better. If you want to do price comparisons then publish a list of 50 items which are only essential food stuffs, not soda, not laundry detergent, but actual food items, things that are necessary to live. This will do two things: 1. Give all an unbiased list of comparison. 2. Really lower prices of essential grocery items for the poor. Of course, many retailers wouldn’t participate because they don’t want the poor in their stores.
Ultimately, Walmart needs to step into the customer-centric model–supply chain and mass media disciplines have been maxed from a P&L standpoint in the domestic market (note–plenty of room international.)
The short-sighted comments that are alarming to me reflect that Walmart is King and while the crown will get tarnished, they’ll always be king (or something to that point.) I suspect that same commentary was flowing back in the 70s about Zenith, Chrysler in the 80s, Lehman Bros in 90s–the point is, great companies can fail and it’s often based on hubris and lack of insight to what the consumer is doing/wanting.
Customer centricity can be merchandising, addressable media, multichannel marketing, loyalty, etc. The point is the discipline of watching what comes off the shelves needs to be applied more aptly to the people taking that merchandise off the shelf (and making that actionable.)
Quite honestly–I think Bentonville has become to siloed and too big to really think outside the box and its policies–particularly related to strategy. Suspect companies like Zenith were similar in that success…and corresponding numbness.
Here in California there is no way that any retailer has better prices than Walmart.
Target is nearly 50% more expensive in hundreds of grocery and health and beauty SKUs (I would really like to see what categories and what brands/white labels Target supposedly sells cheaper).
The Dollar stores are also more expensive when you take product volume/quantity into account. We do not yet have Aldi, and leaving Costco without spending $100 is impossible, so unless you catch a great special at Ralphs or Vons, Walmart offers the best value.