Can Walmart’s Mass-to-Class Strategy Work?
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Walmart is undergoing a massive corporate makeover. With $500.3 billion in total revenues worldwide in 2018, 11,700 stores and 2.3 million associates, it is a long-term project that will take place on many fronts. Change and corporate transformation in its business and culture were CEO Doug McMillon’s primary theme in remarks at the June 1 Walmart Associate and Shareholders Meeting.
With the U.S. Walmart segment accounting for 64% of total sales, or $318.5 billion alone, including nearly 5,000 stores, as well as its e-commerce business, this is where the stakes are highest and its eventual transformation will be measured. By comparison no single corporate unit accounts for even as much as 1% of net sales.
At this past January’s National Retail Federation Big Show, where McMillon was honored as The Visionary at the NRF Foundation Gala, he told the story of the company’s awakening to the need for change. “At some point, Walmart became big and societal expectations changed. And we missed the memo.”
But it wasn’t just societal changes that Walmart missed, but demographic shifts as well. Its core customer base of lower-to-middle income consumers are losing ground to higher-income consumers with greater spending power and much higher expectations of what they want when doing business with a company like Walmart.
Driven by necessity
From 2012 to 2016 the number of U.S. households grew by a mere 3.1%, from 122.4 to 126.2 million, but most of that growth as been in the higher-income $100,000 and over segment, according to the latest census.
While the number of lower-income under $50,000 households declined by nearly 6% over the past four years and the middle-income households only advanced 2.4%, those at the top rose 22%.
Walmart’s average customer has an income of only $56,482, according to Kanter Retail, so its core customer base is shrinking. It simply has no choice but to figure out ways to entice the more affluent customers whose income has outgrown Walmart’s basic marketing message of “Everyday Low Prices (EDLP).” By necessity it has to align with affluent consumers.
Upmarket move from mass to class
Just added to Walmart’s e-commerce platform is a new premium brand shop under partnership with Lord & Taylor. This greatly expands Walmart’s brand width to include 125 luxury-leaning fashion brands. Denise Incandela heads up Walmart’s digital fashion group and she comes with impressive luxury-fashion credentials after serving as president global digital at Ralph Lauren and EVP and CMO at Saks Fifth Avenue.
Selections on the walmart.com premium brands shop are in keeping with Walmart’s more affordable prices and far less extensive than found on the lordandtaylor.com site. It is, however, an interesting partnership, but whether it will move the needle for either company is a question.
Lord and Taylor as a brand sits uncomfortably in the lagging department store sector and somewhere in the middle ground between Macy’s at mass and Nordstrom, Saks, Bloomingdales, Neiman Marcus in class. And if we’ve learned nothing else in the current retail market, being in the middle is the last place any brand wants to be.
Time saved is money earned
For the affluent shopper, time is money and Walmart has been working overtime to make shopping time efficient. Two-day delivery, curbside pickup and more self-checkout stations are designed to giving customers fast, efficient access to its product range and cost saving. A new home installation and assembly for furniture and entertainment systems through the Handy home services provider also makes these expensive purchases more appealing to the time-starved affluents.
To further serve the personal service needs of the affluent, Walmart just announced a new JetBlack service, the brainchild of Rent the Runway’s cofounder Jenny Fleiss. In her role at Walmart she heads up the company’s Store Nº8 technology incubator, whose mission is to “Create the future of retail.”
Jetblack is Store Nº8’s first launch, now in test-mode in New York City. It is described as a personal shopping service that, “uses a combination of artificial intelligence practices and expertise from professional buyers across the home, health, parenting, fashion and wellness categories, as well as parents themselves. Some everyday essentials may be sourced from Walmart and Jet.com, while other items and specialty products are procured from local brands and shops.” Orders can be placed by text message with delivery promised same day. How the AI works, I am not exactly sure.
As a membership service, it carries a premium price tag of $600 per year. It has some of my fellow contributors on the Forbes.com contributor team scratching their heads. Neil Stern questions whether the $50-a-month price tag will deliver real value to customers, who may be jaded by the affiliation with the parent company. But he applauds the company for thinking outside the box. Paula Rosenblum said on LinkedIn, “I’d rather hire a human personal shopper and get it done in a month, but I don’t need AI to remind me I need paper towels. Maybe the logic and market will become clear to me one day, but not yet.”
New corporate consciousness
In recognizing that retail is now a people-first business much of McMillon’s focus for the company is to rehabilitate its tarnished reputation as a corporate citizen and an employer. To this end, the company has been very proactive, raising hourly wages, expanding maternity benefits and it just announced a program to subsidize the cost of a two- and four-year degree program in Business and Supply Chain Management through partnership with Guild Education and three universities.
By taking better care of its employees, the company hopes they will take better care of the 270 million customers served each week. And by supporting its workers, it is also supporting the many communities where those workers live. At the shareholders meeting, McMillon explained how Walmart is working to strengthen the local communities it serves, thorough support of neighborhoods affected by natural disasters, sustainable sourcing of products, and deploying renewable energy.
“The people we serve in communities not only trust us to be there when disaster strikes. They also want to feel good about our social and environmental impact and trust the products we sell are good for their kids and the planet,” he stated.
By raising the corporate consciousness of Walmart, it will position the company in line with the values of the affluent who demand such high standards from the companies they do business with.
A new upwardly-mobile Walmart?
Walmart has very publicly committed itself to change. “Meaningful change is rarely easy but its essential for success in the future,” McMillon said at the shareholders meeting. Part of that change has to be to cultivate a more affluent customer, one who isn’t going to be easy to attract to its local Supercenter stores, which account for 75% of its U.S. store fronts.
Looking from the outside in, I see Walmart’s current efforts to appeal to higher-income customers baby steps in a bigger strategy down the road. The company’s basic DNA still is “Everyday Low Prices,” not everyday great value or everyday great service or everyday great quality, which is what affluent consumers are looking for.
To succeed in marketing to the affluent, the culture built on EDLP has to change. But there still are plenty of people that Walmart serves that need the low prices that it offers. It will be a very challenging tightrope for the company to walk.
At the same time, They have only been in their roles at Walmart for a short time, barely long enough to begin to figure out the complexities of a corporate structure the size of Walmart.
If they stay around long enough to chart the waters, and don’t bail too soon as ModCloth CEO Matt Kaness did after only one year, I think Walmart is in good position to turn its upmarket dreams into a reality. But it may not be enough to do it all online. It will have to open real doors to welcome the affluent shoppers, and it won’t be the sliders at the Walmart Supercenter off the highway.
More about Pam Danziger: Pamela N. Danziger is an internationally recognized expert specializing in consumer insights for marketers targeting the affluent consumer segment. She is president of Unity Marketing, a boutique marketing consulting firm she founded in 1992 where she leads with research to provide brands with actionable insights into the minds of their most profitable customers.
She is also a founding partner in Retail Rescue, a firm that provides retailers with advice, mentoring and support in Marketing, Management, Merchandising, Operations, Service and Selling.
A prolific writers, she is the author of eight books including Shops that POP! 7 Steps to Extraordinary Retail Success, written about and for independent retailers. She is a contributor to The Robin Report and Forbes.com. Pam is frequently called on to share new insights with audiences and business leaders all over the world. Contact her at firstname.lastname@example.org.