Who is the new Wal-Mart customer?
Accomplishing Wal-Mart's goal to appeal to a wealthier shopper may mean going against the company's very DNA
As Wal-Mart contemplates shaking up its own retail approach, the company has estimated it will spend $1 billion on increased wages and worker training and billions (plural) on e-commerce. It’s also made a point of cleaning up its stores, something that late last year was already beginning to pay off.
The retailer— the world’s largest and the country’s largest—is looking to appeal to wealthier and perhaps more urban customers in an effort to find the path to growth that its investors are clamoring for. These efforts, among others, serve that goal.
“The final growth area I want to highlight is appealing to a blend of income levels,” CEO Doug McMillon told analysts in October last year. “Globally we know growth will disproportionately come from middle and upper income households in the years ahead. In markets where we have a presence middle income households are projected to drive 50% of total retail growth. Today we appeal to value oriented customers in all brackets.”
The company's plan to close 154 U.S. stores and open others in wealthier areas in part demonstrates this shift, as Wal-Mart has also abandoned plans for new stores in lower-income areas. Retail Dive reached out to Wal-Mart for comment.
But, despite all these efforts, a key question remains: Can Wal-Mart successfully move beyond its core customer base?
Today’s Wal-Mart customer
Target’s average customer, meanwhile, is younger and wealthier, by five years and by $12,000 annually. Among the retailers studied by Kantar, which included dollar stores Family Dollar and Dollar General as well as Wal-Mart and Target, millennials most often choose to shop at Target.
“The logic on Doug Mcmillan’s part is correct. Wal-Mart needs to grow online, and, statistically, heavy online shoppers tend to be those with higher personal and household incomes,” retail futurist Doug Stephens, author of "The Retail Revival: Re-Imagining Business for the New Age of Consumerism" and the Retail Prophet blog, told Retail Dive in an email.
"So, while the need for Wal-Mart to move to serving a wealthier clientele is real, it’s going to be a difficult task to reframe Wal-Mart in that consumer’s mind," Stephens says. "Sam Walton committed his life’s work to positioning and retrenching Wal-Mart as a chain built by and for the middle-class. To move further up-market means fighting a strong current of corporate DNA, not to mention risking turning off existing customers. It’s the proverbial ‘rock and hard place’ scenario.”
Arun Jain, professor of marketing research at the State University of New York at Buffalo, says that, indeed, Wal-Mart stores are a cultural phenomenon. He doesn’t believe that the retailer’s core customer will buy much more online, for example, because shopping there is actually a social ritual for many lower- to middle-income shoppers in many areas.
“The whole family goes there,” Jain told Retail Dive. “They meet and they talk. Will they give that up? I don’t think so.”
In fact, many of Wal-Mart’s services, like tax-prep, banking, insurance, and investment services, are aimed at the lower- to mid-income consumer that doesn’t necessarily have access to traditional outlets for those services. They’re a way to bring those shoppers into stores and capture a greater share of their wallet, Jason Goldberg, vice president of commerce at digital marketing firm Razorfish, told Retail Dive last year.
But the comparison to Target may be spot on, considering that, according to Columbia University business school retail studies professor Mark Cohen, it’s Target’s customer, even more than Amazon’s, that Wal-Mart is after. Though it's not about abandoning the core customer, Cohen says.
"They would be crazy to abandon their base customer—they’re not looking to do that. They’re speaking in code,” Cohen says. “And what they’re really saying is they want to compete more effectively against Target.”
Cohen notes that Target itself has undergone much upheaval in the last couple of years to earn back its former reputation for “cheap chic.”
“Target is just now getting its own mojo back after frittering it away over the last seven or so years, which is to say they were focused, importantly, on interesting, well differentiated goods in addition to having the everyday things that people shop for every day. Wal-Mart has only been able to appeal by being cheap. Their stores don’t reflect any gracefulness or care in that regard, they’re just filled with stuff that’s priced very very cheaply.”
And it’s not that Wal-Mart doesn’t offer interesting items, Cohen notes, but that it’s overall assortment fails to draw in the wealthier shopper.
“Wal-Mart is enormous, so it has the scale, but can’t appeal outside of their core customer, really, because they don’t have anything to offer beyond price. I’m not suggesting they don’t have interested things to buy,” he says. “But there’s an art to compelling assortments...Wal-Mart plays the dumb game—cheap and deep—so that even when they have nice product they typically don’t get credit for it the way Target does.”
Down this road before
Wal-Mart has already tried to target wealthier shoppers, our experts all told us, with moves it made 10 years ago that included bringing design teams to New York City in an attempt to produce more fashionable apparel and home goods. But this move was widely seen as contributing to a sales drop that investors wouldn’t tolerate.
“Some might still recall Wal-Mart’s ‘Project Impact,’ an effort to clean up their stores and make them more attractive to affluent shoppers,” Stephens notes. “The result was a dramatic drop in same-store sales and significant losses for the chain.”
While Amazon’s investors seem tolerant of its penchant for plowing profits back into operations and taking time to see results, Wal-Mart’s investors have not shown the same level of patience.
“The tension that Wal-Mart faces is that they’re a publicly traded company that reports quarterly, but at their scale, these kinds of transitions take a long time,” Keith Anderson, VP of retail strategy & insights at Profitero, told Retail Dive. “And this one has been a priority for the better part of a decade.”
What can Wal-Mart achieve?
At that October analysts meeting, McMillon admitted that Wal-Mart has found it difficult to change in the past, but said that major change is already underway.
“And we are changing. When we stood before you a year ago our sense was that we hadn't been changing quickly enough or boldly enough,” he said. “So we have been investing to get stronger and faster. Specifically we are investing in people and technology to evolve our customer experience to serve them today and tomorrow. Now we made a significant commitment to our store associates this year and next. We took a leadership role to increase wages and to get the talent we need. It was the right thing to do.”
And McMillon spoke further along those lines. But Cohen believes that talk, like so many other things available at Wal-Mart, is cheap.
“It’s extraordinary difficult,” he says. “You’re talking about the changing of the tide, and not just from the product development point of view. Wal-Mart has thousands of stores and thousands of people. Wal-Mart has an embedded culture, and the attempts they’ve made to change have failed largely because they’ve failed to change that culture.”
And even when Wal-Mart does change, that pressure to show immediate results works against it.
“And by the way, something always goes wrong, especially in the context of making changes,” says Cohen. “As soon as their efforts wouldn’t show fruit, they’ve abandoned it. It takes two to five years to change the composition of a large store and a large number of stores without losing your core customers and your underlying business."
"I’ve seen these kinds of initiatives come and go at Wal-Mart, and I have never seen them stick. I think there are too many people there who are of the view ‘this too will pass.’”