Wal-Mart's Most Wanted
Attention, affluent shoppers. The retail giant is bent on capturing your dollars
At Fair Lakes shopping center in Northern Virginia, where the median household income of $81,000 is nearly double the national average, Wal-Mart certainly has no problem attracting the customers it sees as its future. But a peek in their shopping carts reveals the retailing titan's plight. Laura Swearingen, who lives 25 miles away in Alexandria, Va., comes to buy cleaning supplies and cat food and perhaps "tank tops and stuff for softball." Penny Peyton of Annandale also has made a long drive from the inner suburbs to look for staples such as paper towels and toothpaste. As for clothing, she'd look to Wal-Mart only for "maybe something cheap to knock around in" and, of course, for underwear. Not for a nice outfit for work or a special occasion. "They don't have the selection or quality," says Peyton.
A low-cost, middle-America image certainly has served Wal-Mart well on its march to worldwide dominance in the retail industry. With annual sales of $285 billion and 5,350 stores (3,700 in the United States), Wal-Mart has pushed aside Main Street small businesses, crushed competing grocery chains, and changed the way America shops. It is still retail's undisputed king, but now Wal-Mart faces new challenges in its drive for future growth. Sales at existing stores--an important industry benchmark--increased just 2.9 percent in the first quarter, considered lackluster compared with the 6.2 percent hike at cheap-but-chic competitor Target. Although Wal-Mart's revenues are still six times as high, its stock price has slid 15 percent since March 2004, while the value of Target shares has soared 23 percent. High gasoline prices and the uptick in interest rates have dealt a bigger blow to Wal-Mart because its average shopper has less disposable income, an annual salary of $35,000, compared with $50,000 for the Target regular.
When Wal-Mart shareholders convened near the Bentonville, Ark., headquarters earlier this month for the company's annual meeting, Chief Executive Officer Lee Scott confessed, "We aren't where we need to be." He wasn't talking primarily about the myriad troubles that have made headlines in the past few years: the largest class action lawsuit ever, a discrimination case on behalf of its 1.6 million female employees; the union-funded campaign against the company's labor practices; or the activism that has blocked the opening of new stores. Scott's main concern now is how to capture a new prey, the upscale customer.
Americans already know they can turn to Wal-Mart for low prices on food, detergent, and underwear. But its executives are convinced that if the behemoth is to maintain the momentum that Wall Street expects, it will have to sell more profitable goods like stylish apparel, home fashion, and electronics. "Historically, they're the low-cost replenishment leader," says Mandy Putnam, analyst at Retail Forward, a market research firm in Columbus, Ohio. "Their challenge has been how to get that shopper across the store to shop for something other than basics."
Nice threads. Wal-Mart's efforts thus far have often fallen flat. Analysts at Credit Suisse First Boston noted recently that the quality of goods has improved, including, for example, high-thread-count cotton bedsheets. But in stores the analysts visited, nothing distinguished the fancy sheets from the cheaper alternatives. "The merchandising of the improved product has not kept up," said the CSFB report.
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