Wal-Mart has no problem selling toothpaste or soap or other personal care and household items — 84 percent of the U.S. population visits one of the retailer's stores each year.

John Fleming, Wal-Mart's chief marketing officer and executive vice president, said the challenge is that "we don't necessarily have the right product or the right experience in other categories to engage them more fully."

Now the world's largest retailer is drilling down to become engaging. "Segmentation — this is where we are moving toward," Fleming said.

Wal-Mart is moving from a "one-size-fits-all" orientation to focusing on different customer segments to tailor stores so they better serve the segments, which means the products and the store image are changing.

Fleming said during his presentation that the company is intensifying efforts to better focus on Hispanics, Baby Boomers and higher-income venues such as Plano, Tex., as well as inner-city locations such as Chicago.

Three years ago, Fleming was recruited from running walmart.com, based in San Francisco, to Wal-Mart headquarters in Bentonville, Ark., and given the task of building a marketing team, developing customer insights and setting new directions. Wal-Mart has reported softening same-store sales, and the performance has been particularly soft in apparel, including the Metro 7 line. In addition, the company continues to come under fire for labor practices, and community groups have been seeking to restrict Wal-Mart's expansion.

Against that difficult backdrop, the company is learning to reshape its image, as well as its assortments to answer critics and elevate the business.

Sustainability has become a corporate mantra. Fleming said that Wal-Mart is determined to become more environmentally friendly, with the products it sells and the energy it uses in order to generate less waste. The strategy will help draw a greater number of shoppers to the store, particularly younger consumers, and also can reduce costs for Wal-Mart, he said.

"Sustainability is a real issue,'' Fleming explained. "We have partnered with groups we never thought of before to better understand what things we can do to lower costs and build a more sustainable business model. This is very consistent with the way Sam Walton built the business. Every opportunity we had to build the sustainability business model lowered the cost of doing business."The company is working with manufacturers to dramatically lower the cost of compact fluorescent lightbulbs and hopes to sell 100 million of them next year, helping to reduce environmentally damaging gases, he said.

On the waste and energy fronts, Wal-Mart is seeking to come up with product and packaging design with less waste that ends up in stores and distribution centers. It's also trying to improve the efficiency of its truck fleet.

Last year for holiday, the toy buying team was instructed to "right size" packaging so it was as small as possible, and still maintained the integrity of the product. The program resulted in a dramatic reduction in containers being shipped from Asia, Fleming said.

Wal-Mart also intends to sell more organic food, which Fleming noted historically has been expensive because of the costs of converting fields. However, he cited a situation in which a supplier in Turkey is providing 10 million pounds of organic cotton under a five-year contract that enables the company to more cost-effectively and quickly convert fields.

"Most customers still will not choose the store based on their sustainable business practices," Fleming said. However, "There is one segment that cares very deeply, and that's the millennium [generation]. The teenage population cares very deeply. This is a way we can reach out and develop relationships with young customers that we haven't done in the past."

Fleming conceded that the company has not had much traction communicating to the public its sustainability efforts, though he noted sustainability is only an 18-month-old strategy.

Wal-Mart, Fleming said, sees its shoppers in three camps: the loyalists, the selective shoppers and the skeptics. The loyalist frequently shop Wal-Mart, shop many categories and are financially challenged. They use Wal-Mart to buy almost everything and save $2,400 on average [annually] by shopping the store, Fleming said.

The selective shoppers also buy in Wal-Mart frequently, but narrowly, targeting specific categories. And the skeptics don't shop Wal-Mart often, and it's always for a limited number of categories.

Wal-Mart thought Hispanics would fall into the loyalist camp and was fooled. "They didn't, because we didn't meet their needs in all categories,'' Fleming said. "In produce, we underindexed, because we didn't have the right product. In Metro 7, we didn't necessarily have the right sizes or the right fashion."The population of Hispanics "is the fastest-growing segment we have in the U.S. and in Wal-Mart stores," Fleming said, adding that there are 43.5 million Hispanics in the country, representing 14.7 percent of the population, or one out of seven U.S. residents. "Hispanics will increase by about 34 percent by [the] year 2010. This is a rapidly growing segment for us."

Though Metro 7 didn't resonate strongly with Hispanics, Fleming insisted that the Metro 7 strategy is "right on." Initially, "we put it in 300 to 350 stores and did fantastic. Then we rolled it out to 1,500 and didn't get the depth right and probably went too far into some roll locations. The strategy is right, we just need to execute against those segments and [have] the appropriate product.

"The apparel business is a pyramid,'' he said. "The base is the basics — that's what drives the business and creates the profit. The middle is the essentials of the season, and the top is the fashion." In Metro 7, "we developed more of an hourglass. We got a little carried away on the fashion. We didn't have enough in fashion essentials for the season, and we didn't stimulate the core enough."

In Plano, one of the highest income markets served by Wal-Mart with an average household income of $140,000, and other high-income markets, Wal-Mart stores often underperformed relative to the company's expectations. To find out why, "we went deep into understanding the customer" and discovered the customer felt the stores were cluttered and the adjacencies were off, Fleming said.

Changes were made to the Plano unit, including limiting inventories to create better sight lines, and a new way to navigate the stores was developed. "In a couple of key departments, we distorted the inventory," Fleming said, citing wine, for example, where stockkeeping units went from 120 to more than 1,500 and prices ranged from $5 to $500. As a result, "we did five times the business of any store we ever opened with wine," Fleming said. Also, the Plano unit is running 20 percent ahead of plan and ahead of any comparable store in a similar market, Fleming said.He described the Boomer customer as essential to Wal-Mart. "They have a lot of discretionary income. They are aging. They shift from products to services, and the most important service in our store for the Boomer in the future is the pharmacy. They're very concerned about health care and health care costs." That's why the company recently launched $4 generic drugs to drive loyalty.

"I think the future retail model is about thinking like a marketer, but acting like a merchant," Fleming said. "Merchandisers and marketers can actually go in two different directions, because they think about things very differently. Merchants spend all their time obsessing over product [and] tend to be somewhat tactical. Marketers spend all their time thinking about [the] customer. They're actually slow. Merchants are fast. Marketers think very strategically. They make choices, and they prioritize very well. Merchants are very focused [on] driving sales, any kind of sales. On the other hand, marketers are focused on building brands.

"If you take the best of marketing and the best of merchandising, that is the future model for the successful retailers," he continued.

Fleming described his career as straddling both realms, though initially he started as a merchant. In the early Eighties, Fleming worked at the Dayton Hudson and Marshall Field's department stores, all of which now are called Macy's.

"I don't really remember thinking about customers a lot. I can remember exact products," he said. "Remember the main-floor blouse departments. I was responsible for main-floor blouses, which no longer exist. In 13 stores, we sold 30,000 units of this bow blouse." Then, he felt, "this merchandising thing was in my blood….I loved coming in every day to see how many we sold."

He was equally turned on when shaker knits and shirt dresses became hot. After becoming a swimwear and activewear buyer, he recalled how fleece separates, bodysuits, stirrup pants and tunics became hot.

When Fleming rose to a general merchandise manager, "the world started to change,'' he said. "In the Eighties, it was about products and categories. In the Nineties, it was about brands: It was Tommy and Donna and Ralph. Everyone had some concept….It taught us a lot about how do you actually manage a brand. The flip side was, there were a lot of merchants that didn't develop because they were rewarded based on brand performance, as opposed to knowing what products should be sold."Department stores faced another problem in the Nineties: They had bridal registries, career clothes and related accessories and shoes, but "the world went casual," and they were stuck with overplayed categories that didn't sell as well.

Subsequently, he joined walmart.com, where he began spending less time on merchandising and more on building a development organization, a supply chain and a distribution strategy.

"It gave me an opportunity to really learn about customers,'' Fleming said. "I went from thinking about products to thinking about customers and specific customer segments. The online channel is amazing because you can see everything a customer is doing. You can see what they're searching for, where they navigate through the site. You can see where your deficiencies are and better understand the [customer's] needs so you can create product offerings. It gave me an opportunity to go into the mass channel and begin to develop a segmentation strategy for Wal-Mart."

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