Wal-Mart wooing wealthier shoppers

More than 3,600 people are employed worldwide by Wal-Mart’s e-commerce division, including about 3,000 in the Silicon Valley. They populate several offices in California, including this building in Sunnyvale.
More than 3,600 people are employed worldwide by Wal-Mart’s e-commerce division, including about 3,000 in the Silicon Valley. They populate several offices in California, including this building in Sunnyvale.

Wal-Mart Stores Inc. executives view recent strides in e-commerce, grocery pickup and smaller format stores as key in helping them compete for higher-income customers.

CEO Doug McMillon has, in multiple appearances recently, mentioned appealing to shoppers with a wide range of incomes as key to the retailer's growth. McMillon included the desire to reach "a blend of income levels" during a call with analysts and members of the media when Wal-Mart released its third-quarter earnings.

"We already serve customers from all income levels around the world, but we have an opportunity to get stronger," McMillon said. Also outlined as part of the growth strategy is an emphasis on value and convenience and improving the marketing approach in stores and online with a focus on North America and China.

McMillon noted last month in a meeting with analysts that income growth worldwide will "disproportionately" come from middle- and upper-income households. In markets where Wal-Mart operates, middle-income households are projected to drive "50 percent of retail growth," he said, adding that the retailer appeals to "value oriented customers in all brackets."

About 30 percent of Wal-Mart shoppers make between $50,000 and $99,999, according to a slide referred to by McMillon during an October presentation for analysts. That percentage is identical to the number of households in the U.S. making between $50,000 and $99,999.

About 21 percent of the retailer's shoppers make $100,000 or more, slightly below the 23 percent in that income range who make up the U.S. economy.

A 2014 report from Kantar Retail described the average Wal-Mart shopper as a 50-year-old making $53,125 annually. The average Target customer was 38 years old and earned $65,125 per year, according to the report.

Wal-Mart has targeted more affluent shoppers in the past, with poor results. A decade ago the retailer took out $800,000 worth of advertising in an issue of Vogue and moved its apparel operation to New York City. That ill-fated attempt at becoming more fashionable was linked to declining sales in the fourth quarter of its fiscal 2006.

Retail consultant Carol Spieckerman said Wal-Mart quickly reversed course after early results with the strategy drew criticism. Spieckerman, president of Spieckerman Retail, said she isn't sure that reversal was the right strategy and that it seemed to mostly be a reaction to negative attention.

"The media backlash was harsh, undeservedly so, as Wal-Mart has a right and obligation to its stakeholders to explore opportunities with new customer segments and in high-margin categories," Spieckerman said. "If anything, I would have liked to have seen Wal-Mart stick with the strategy a bit longer."

Wal-Mart believes that it is doing things that already appeal to shoppers with higher incomes. McMillon noted that its small-format Neighborhood Markets approach to e-commerce and grocery pickup will resonate "across all income levels."

Cleaner stores could also make a difference, McMillon said. Executives have described the ideal Wal-Mart store as clean, fast and friendly. Wal-Mart U.S. CEO Greg Foran said about 70 percent of the company's stores have reached satisfactory levels.

"That doesn't mean we are going to take our eye off the ball as it relates to opening price points and customers at all income levels," McMillon said during a question-and-answer session with analysts last month. "But the nature of e-commerce, the nature of the Neighborhood Market and other things we're doing do create an opportunity for us to be even more relevant to customers at the higher end of the scale."

Edward Jones retail analyst Brian Yarbrough said he questions whether Wal-Mart will be able to make a meaningful play for higher-income consumers. Shoppers who prefer chains like Target and Costco tend to be loyal to those brands, and without significant changes to product offering, Wal-Mart faces an uphill climb.

In stores is where Wal-Mart faces the most significant challenges, Yarbrough said. Online shoppers tend to be higher-income, Yarbrough said, so it is possible that the retailer could gain ground there.

"I'm not saying it's impossible," Yarbrough said. "I just think it's important to stick with what's made them successful, those lower- to middle-income customers. Drive that. Otherwise you're getting away from your core."

Spieckerman said the emphasis on e-commerce, small formats and grocery pickup is the right move for Wal-Mart. Those are services that higher-income shoppers value.

Wal-Mart grew its e-commerce business by about 10 percent in the third quarter and is closing in on 10 million items available online. It is now offering grocery pickup in 25 markets with 140 locations.

"Having a compelling e-commerce and convenience proposition are critical to wooing high-income shoppers," Spieckerman said. "If Wal-Mart gets them right, it won't be necessary to overhaul assortments."

Business on 11/26/2015

Upcoming Events