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Tale of Two Wal-Marts: Retailer’s Legacy, Future Collide in Transition Era

Will the real Wal-Mart please stand up? The world's largest retailer sometimes seems like two different companies.

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Will the real Wal-Mart please stand up?

The world’s largest retailer sometimes seems like two different companies. One is the cutting-edge Wal-Mart at the forefront of Master Data Management, a type of information technology, and consumer response network technology. This is the Wal-Mart that is building environmentally sensitive stores heated by solar energy and recycled fuel, testing upscale prototypes, opening a fashion office in Manhattan and presenting fashion shows in edgy venues.

Then there is the other Wal-Mart, which started to build its business in rural Arkansas, sells guns, grain and gas, censors rap music with lyrics it deems offensive and removes from store racks sexually explicit magazines such as FHM, Maxim and Stuff. This store, the Wal-Mart of late founder Sam Walton, recently revived the yellow smiley face symbol for low prices.

The differences between Walton’s Wal-Mart and the evolving and more progressive Wal-Mart are becoming well defined and are sometimes in conflict. With more than 4,000 stores in the U.S., the $344.9 billion retailer is fast approaching saturation in the rural and exurban markets where it has roots. To grow at a rate shareholders find acceptable, the company must move into urban centers where customers demand higher quality, fashion-forward apparel and well designed home products.

President and chief executive officer H. Lee Scott, who joined the company’s transportation division in 1979, has been the keeper of Walton’s legacy and an instigator for change. Scott in 2005 spearheaded an ambitious environmental program, which includes boosting energy efficiency, increasing sales of organic food and reducing waste and emissions of greenhouse gases. Critics have said the campaign is more about public relations than conservation. Scott emphasized that Wal-Mart’s commitment to reducing waste saves the company money. Walton would have approved.

Innovation on the product side, especially apparel, has been trickier. Wal-Mart’s attempts to deliver trendy styles such as skinny jeans and metallic fake shearling vests in its Metro 7 collection were poorly received and sales suffered. Scott admitted that the fashion-forward merchandise was not what most Wal-Mart customers wanted.

Describing a pyramid with basics at the bottom, fashion basics in the middle and a small triangle of fashion at the top, Scott said, “We need to have a little bit [of fashion] at the top so our customer knows we have a sense of what’s happening out there in the world. There’s a tremendous opportunity without stepping out to the next level, which is so dangerous…unless you’re a high-fashion company.”

This story first appeared in the March 20, 2007 issue of WWD.  Subscribe Today.

The awkward efforts to develop apparel for a younger, more sophisticated customer represent Wal-Mart’s struggle to find its fashion identity, said Deutsche Bank retail analyst Bill Dreher. “Wal-Mart is attempting to discover its metrosexual self,” he said. “They’re awesome in distribution and logistics and commodity-based products. The efficiency of their operations can’t be touched by any other retailer. But they’re still trying to develop their own sense of style.”

Wal-Mart is looking to chief merchandising officer John Fleming, a veteran of Dayton Hudson and Marshall Field’s, to help define its style. Fleming bears some responsibility for Metro 7’s aggressive rollout. Also, commercials produced by former marketing chief Julie Roehm were considered too racy to air by staid Wal-Mart standards. Roehm was subsequently dismissed amid accusations of inappropriate behavior.

Robert Buchanan, a retail analyst at A.G. Edwards & Sons, said the retailer, which traditionally promoted its executives through the ranks, has been hiring more outsiders who don’t always understand the company’s traditional values. “There’s an established culture and a group of elite players at Wal-Mart,” he said. “There were a lot of homegrown executives in the past, but the company’s [financial performance] hasn’t been good. Wal-Mart wants to do better, even if that involves bringing in new people.”

Although Roehm’s ads may have been too risqué, Buchanan said the company needs to enliven its advertising and marketing. “Wal-Mart has had a lack of sophistication and that’s emerged in its marketing message,” he explained. “It needs to improve. In this day and age, you have to be part of the modern world, you have to be with it. Their kind of formulaic, unsophisticated marketing” approach doesn’t work.

“After all these years and all their success, Wal-Mart is going through an identity crisis,” said Gary Williams, founder and president of KRI, which researches and ranks top-performing retailers. “It’s interesting that they’ve chosen a merchant [Fleming] as the heir apparent. The solution for Wal-Mart is less in their products and more in their business approach. Their business strategy of economies of scale has really run its course. That’s why they tried to duplicate what Target did with Go International,” which highlights capsule collections from young

designers. “Target is saying, ‘We want to give customers exclusivity.’ Is exclusivity really Wal-Mart’s identity?”

At a recent meeting with Wall Street analysts, Scott said there is evidence that Wal-Mart customers want high-end merchandise. “While we have work to do with shopping across the aisle, we have the ability to get the sales benefit,” he said. “In mid-August, we started selling 600-count Springmade hotel sheets. We sold 26,000 packages in 700 stores without an advertising plan.”

Merchandising efforts to sell higher-priced products, such as a deal with celebrity decorator Colin Cowie, have been interpreted by some experts as evidence that the company is shifting its attention to wealthier shoppers, but Scott has maintained that Wal-Mart is committed to its core consumers.

However, Wal-Mart’s decision to end the layaway system was a blow to customers of limited means who rely on payment plans to buy clothing, Christmas gifts and bigger ticket items such as TVs. Retail experts said this, too, was an indication that Wal-Mart is trading up to a more affluent shopper. But the company said the move was intended to save money and entice more consumers to use credit cards.

In its effort to appeal to urban consumers, Wal-Mart has embraced new constituencies, which has sometimes caused a backlash. Conservative Christian groups accused Wal-Mart of promoting a gay lifestyle last year when the retailer, seeking to improve the diversity of its associate, supplier and customer bases, partnered with the National Gay and Lesbian Chamber of Commerce and Witeck-Combs Communications, a gay marketing agency.

“Wal-Mart is a lightning rod for a wide variety of individual concerns,” Deutsche Bank’s Dreher said. “That doesn’t make its life any easier.”

Commerce sometimes gets in the way of the company’s core values, which are part of Wal-Mart’s DNA. Belying its Bible Belt roots, the company sought to capitalize on the popularity of the 2005 Oscar-nominated film “Brokeback Mountain,” which is about the love affair between two ranch hands. Wal-Mart put posters of the DVD in its store windows and was again criticized by Christian groups. The retail giant last month couldn’t pass up the blockbuster potential of a new biography of the late Anna Nicole Smith, which has a racy photo of the blonde bombshell on the cover, and ordered a shipment.

Another move that was seen as a slight to longtime shoppers was the removal of firearms in March 2006 from 1,000 stores, which also angered gun rights advocates and sporting groups. Wal-Mart, which is the largest seller of rifles and shotguns in the U.S., said its decision was based on a lack of demand and is not a reflection of a change in its position on selling firearms. Some stores are using the space for exercise equipment and sporting goods.

As Wal-Mart experiments with how far to push the fashion and marketing envelope, it will likely continue to generate some negative reaction from consumers and critics. This past holiday season, Wal-Mart pulled a TV commercial — made under Roehm’s direction — that featured a couple cooing provocatively over satin pajamas.

Last month, “Sam’s Dream,” a commercial that began airing nationally, struck a far different tone. “It all [started] with a big dream in a small town, Sam’s dream,” the narrator intones. “It’s been said that when Wal-Mart comes to town, it’s like getting a nice pay raise.”

Wal-Mart has too much invested in its “down home” persona to abandon it completely. Dreher thinks there is room for both the more modern and traditional approaches. The balance between them will be tested in the apparel arena.

“Wal-Mart needs to get [apparel] right because of the profitability gap,” Dreher said. “It needs to evolve the mix to higher-margin merchandise. The ultimate question is, ‘Can the Wal-Mart culture, which has always been reverential to Mr. Sam [as Walton was known to employees], evolve to become more fashion-sensitive in particular stores?’

“Given the support for this mandate from the company’s highest ranks, we think it’s going to work,” he said. “Mr. Sam always worked to emulate the things he found most admirable and desirable and incorporated them into his business practices. That drive for excellence is part of the company’s roots. By that measure, the old guard is well suited to evolve. Their problem is, evolution is never a straight line up.”

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