Wal-Mart: Moving Beyond Low Prices

In the current economic situation, it was to be expected for Wal-Mart (WMT) to thrive. It has always offered the lowest prices in groceries and other basic goods. Yet, in the good times, many consumers would refuse to shop at Wal-Mart for issues ranging from convenience all the way to, very simply, status. In the face of rising prices and economic uncertainty, those issues are mostly gone for a good chunk of the population. Consumers will do whatever is necessary to stretch their paychecks. Consequently, Wal-Mart has been able to report sales growth quarter after quarter for over a year now. With it, we've also seen its stock price increase nicely, from the low 40's back in October 2007 to $63 last week.

Now, this growth has not happened just out of inertia. Wal-Mart has been very conscious of the opportunity the economic downturn represented for the company. As a result, it very purposefully refocused its marketing efforts to attract a wider range for middle- and upper-middle-class embattled consumers by positioning itself as the best alternative to preserve the lifestyle they are clinging to.

Wal-Mart's campaign "Save money. Live better" is an excellent effort in that direction. In the past, Wal-Mart communication focus had always been around its low prices, under their "Always low prices. Always" creative platform. Their target audience was comprised fundamentally by cost-conscious, low-income segments. Even though this was the promise that made it a retail giant, during the years of economic surge this approach was actually affecting Wal-Mart negatively.

As consumers' disposable income rose, Wal-Mart saw more and more consumers turning to retailers that offered not only good prices, but most importantly, emotional value: higher quality, better design and a more pleasant shopping experience. Target is the best representation of that trend. Wal-Mart was unable to reinvent itself in order to leverage that trend and stem the outflow of consumers. Even if it wanted to do it, its strongly cemented position as the value player meant it lacked the credibility to reposition itself.

That just changed. As indicated, the economic downturn and the recalibration it has generated in the consumers' priorities has provided Wal-Mart with the opportunity to re-build its image among an audience willing to listen, and the company is taking it.

Wal-Mart's communications are not anymore just about price rollbacks. Instead, the "Save money. Live better" TV commercials are high-quality depictions of situations and events that consumers relate to high quality of life. Moreover, the campaign does a great job at going deeper and touching emotional chords in the consumers. It really appeals to the emotional drive of making the most of your money in order to take care of your loved ones. In that sense, the campaign is very insightful and goes beyond the rationality of low pricing. It is about providing what is necessary for those you care about to enjoy a better life. Very well done!

I am encouraged by this brilliant re-direction in Wal-Mart's communications. I think they really found the right way to re-define their business in a way that will make an ample segment of middle-class consumers reconsider Wal-Mart.

Nevertheless, the communications platform is just half of the job. Indeed, Wal-Mart is doing a great job in leveraging the opportunity provided by the environment to drive new consumers to the stores. Wal-Mart has been able to appeal to a larger group of consumers and has gotten them to shop in their stores; they will continue doing so while the economic situation is still adverse. But in order to generate organic, sustainable growth, Wal-Mart must also be able to retain them when the situation improves.

And here is where I remain skeptical. The Wal-Mart shopping experience is still sup-par, if not outright dreadful. Messy stores, out-of-stocks, apathetic, nowhere-to-be-seen and unhelpful associates, low-quality merchandise and unacceptable long lines at the few registers that are open at any given time still plague the experience at Wal-Mart. At Wal-Mart, you don't enjoy the experience: you endure it. If this is not corrected, my view is that we've seen everything the stock has to offer in terms of returns. The new consumers Wal-Mart has been able to generate will flee once the economic pressure subsides.

Wal-Mart has a unique opportunity to re-invigorate its franchise. In terms of communications, it has done the right things. If it starts addressing the issues in its consumer experience model, this power-house may once again become a prime core stock to hold in your long-term portfolio.

Stock position: None.

Comments

[crankyinvestor:]

only some wmt stores are sub-par; if anything, the walmart experience can be a real hoot for someone who's been shopping in smaller and more upscale stores; recently, we put together a party for 150 people on the spur of the moment -- 2 vanloads of stuff we bought on a sunday morning for an afternoon bbq - including 2 bbq's; 40 lbs of meat; 30 lbs of hot dogs; and enough beer to float a battleship

it was a ton of fun; cost us less than taking 4 people out to dinner; and was all accomplished under one roof with one check-out line.

2008 Sep 15 08:08 AM

[bfebeach:]

I worked for Wal-Mart, and I can tell you this if they treated their employees with respect, rather than as slaves, the customers over all expericance would increase by 75%. It is the customers who makes them rich and they seem to be forgeting this and need to go back to basics.

2008 Sep 15 11:06 AM

[visualverbs:]

I currently work at W-M (HomeOffice, ISD, Bentonville), and the comment about treating the associates as slaves is idiotic. I assure you, no one is getting rich around here and life is as hard for us as anyone else. W-M is made up of humans and, really, that's all you have to say. No one makes the store associate work at the store. No one's holding a gun. If you're a store a ssociate, you know the drill. Do you job, to the best of your ability, OR GO SOMEWHERE ELSE. Tesco needs the grouchy store associate.

I can't remeber the last time "respect" was a benefit of ANY job I had. Why do think they call it "WORK"?

2008 Sep 17 05:09 AM

[rayeman55:]

i worked for walmart for 12 years. when i started, it was a pretty good setup.About the time i left in 2003, they had just started letting fewer people do more jobs, even in management. Every year this gets worse.
For the last 3 or 4 years, instead of giving the employees their bonuses, which they deserve, the would cut hours to make up for the difference in the bonuses, thus no one, except management....GOT THEIR BONUSES!!!!!
Thats just the start of it. And yes, when Sam walked around, the employees were the kings and queens of Walmart. Not management.....

2008 Sep 17 05:20 PM

[Wal mart fan:]

I dont work for WM, but have lots of friends who do and I shop there all the time to save money. Funny, none of my friends who work for WM have ever talked about losing a bonus so one of the managment could get theirs. WM saves me money and that is what I like about them the most. As for some one saying since I dont work there, I dont know the real story. All I can say is I live in NWAR and have well over 100 friends, classmates and church friends who do work there and it must be that they are all liars and the people who bad mouth WM know it all.

2008 Sep 17 05:53 PM

[in2cardz:]

I'm sure there are Wal-Mart stores in some states that are very nice.
I'm in Miami.
The stores I have been into here are often dark, poor lighting & customer service seems to be hit or miss. (frankly, I was pleasantly surprised when I asked about something a few months ago and the person went in the backroom to find the item for me, so I guess that means more often then not, I’m expecting to be disappointed, or have been)

I like being able to save money & if items were in stock regularly and I could buy most of the items I come in for, it would be great.
The problem for me isn’t that Wal-Mart doesn’t have variety in items I buy; the problem is they are always out of stock on so many items.

Food/grocery items that are there one week(food items) are not in stock the next.
The highest number of out of stock items seem to be Wal-Mart’s store brands.
Not because they want to devote more shelf space for name brands that are filling the shelf.
I’ve shopped on a variety of different days and as early as 7AM, and as late as 8PM.It doesn’t seem to be a case of products being in stock in the AM, but sold out in the late hours.

Example: Wal-mart’s store brand GV makes rice mixes that are in the aisle with Rice-A-Roni.
When I first shopped there they had Chicken Flavored Rice Mix, Beef, Oriental Rice Mix, Dirty Rice, Jambalaya flavors.
After coming in a couple times and noticing items were hit and miss in stock, I started saving my receipts so I had the UPC numbers to be able to ask about items.
Last year, I was in the store 6 times over a period of 5 weeks and the Oriental Rice Mix was out of stock each time. The tag was missing also. After 4 weeks , the Chicken Flavored Rice mix was missing also.
Using the online form I wrote Wal-Mart about this , included the store # I shopped at, the product UPC and mentioned the shelf tag had been missing for weeks. I just wanted them to tell me if they discontinued it, or if it was back ordered?
I got a call a week later from someone at the store who said the Chicken Flavored rice was in stock.
I thanked her and asked about the Oriental Rice Mix. She said it wasn’t in. I asked if it was ordered. She said she’d check, would let management know.
It’s now a year later, the product has not been in, and I still wonder if it’s been discontinued.
Last week GV Sugar Free Drink Mixes: ( the kind that has 10 packets in a box so you can take the with you & pour into bottles of water)
on Monday shelf had several flavors in the GV brand .
I only bought a couple boxes, because I didn’t want to get stuck with them if I did not like them. I did like them and happened to be in the area 5 days later, so I went to get more. There were only 2 flavors left, 3-4 boxes of each and the entire section was empty but fronted forward. (national brands like Crystal Light On the Go, & other similar items weren’t out of stock,but were also low, but they had been low when I had been in 5 days earlier.
The following week I went in again, and shelf is still wiped out .
Cat Litter- same thing. The amount of shelf space allotted for store brand only holds about ten packages of 14lb or 20 lb containers . And I’d go along with the theory that more people want to buy the national store brands so they have been allotted more space, but the reality is the national brands litter are usually full - I’ve never seen them sold out or even that low.
GV Raisins – out of stock for months.
When the GV Tuna in a pouch was out of stock several times I was there, I asked someone in the store who said they ordered product, if the item was discontinued. He walked to the shelf, looked around and said we don’t carry it. I said, I bought it here 3 weeks ago; he said there’s no tag. He didn’t offer to check in the computer, or follow up.
I brought in my receipt the following week with the UPC number and showed him the item number. I also emailed Wal-Mart with the item UPC number. The item was finally ordered.
What seems to be the trend there, someone over orders national brands, they Wal-Mart store brand is out of stock, so they fill it with anything else, and then they don’t order the store brands because there’s no space for it, eventually the shelf tag disappears, and it’s forgotten.
Shelf tags are always missing so customers cannot tell the price. (and you cannot order items if shelf tags are missing, can you ?)
I had heard that Wal-Mart was computerized so that as items are sold and scanned at the register, the items are subtracted from inventory and then ordering was automatically done , based on what is sold.
If that’s true, they aren’t doing it in all the stores, or the employees wouldn’t be saying shelf tags are missing so items weren’t ordered.
Of the price checkers set up around the store to allow the customer to scan for pricing, only 1-2 work .
When I have asked someone in the aisles, about an out of stock item, they usually don't have any idea or explanation, as far as letting me know if the item was discontinued or ordered but was out of stock.
If they say it was ordered , you have to press to find out when the next dairy truck comes in or the produce truck, and then they often don’t know but say the next day.(usually it isn’t there the next day.)
I’m not asking anyone for a guarantee the product will be in on a certain date. I’m asking so I can try and stop by the day the delivery truck for that particular item comes in and have a shot at buying it.
And when I have been lucky enough to find someone who cares enough to check the shelf, they tell me the tag is missing .
Or more commonly , you can check back next time. Or call and check before coming in.
Calling Wal-Mart for product information (at least grocery items) usually lands you on hold, repeatedly picked up & asked can I help you, and then again put on hold; and when all is said and done, you don’t get a reply- you’ll just be frustrated)
With the cost of gas, most customers aren’t going to come back daily to pick up the items that were out of stock when they shopped. They buy them elsewhere.
With most stores, you’re only talking about a few out of stocks so it isn’t that big a deal.
But at Wal-Mart, if I take in a list of 50 items I normally bought there , too often I have left with 20-25 of those items not purchased because they are missing.
After awhile, if I have to stop somewhere else to pick up 2 dozen items, I’ll eventually tell myself that it makes more sense to buy more items there, and not keep going back to Wal-Mart to look for items.
I doubt there are many customers saving their receipts so they can email, Wal-mart about out of stocks.
It might be less expensive buying some items at Wal-Mart, but the extra trip costs gas, and more importantly time.

2008 Oct 05 07:08 PM

[wm worker:]

I also work for walmart and have been there for 9 years and the changes int he way we are being treated is amazing to me.They have cut our hours and are now being told by district managers that we need to work harder and faster to insure that the product is on the shelf.They started cutting our hours as soon as we received our little bonus checks,which as employees in small towns the bonus checks are pretty much non existent.Stockers on night shift are now being timed on everything they do,but for day shift everything has stayed the same.Long time assoc.have a cap on their salaries once you meet it you are not able to get any raises not even cost of living raise.It is really sad what walmart has turned into.Mr.Sam is rolling over in his grave he would have never treated his assoc.in this manner.I live in a small town with no jobs available,so I can stay at walmart or not have a job at all,in that respect I am glad to be working,just very discouraged with the changes in respect to the individual,one of Mr.Sams mottos for the company to work by.

2008 Oct 11 07:09 PM

[wm associate:]

i have been with walmart for 8 years i have always been treated with respect.
yes things are always changing and sometime people don't like change but that is life and it will always change. i love my job and i love my store.

2008 Oct 13 06:52 PM

[Luetta:]

Maybe for a one time bash it's fun to shop wmt but as a bi-weekly or weekly experience just call it exhausting. One walks forever only to find little variety but lots of shelf space taken by what IS in stock. After pushing the heavy cart (live too far away to go every day and wouldn't if I could) all over the place in dim lighting one still has to stand in line on already tired feet waiting to check out. Then there is the push to the car, loading it there, the long trip home, unloading and putting away.
Yes, you can ask for help but you have to wait for that, too. Just say Walmart and I'm tired. However, it is one stop shopping for the brave and our local Associates are very helpful and pleasant. Bottom line, at least brighten the place and facilitate faster check-out. Yes, I do just endure it!

2008 Oct 14 08:13 AM