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Wal-Mart to Revamp U.S. Division

World's biggest retailer outlines plans to boost sales in U.S. stores with bolder merchandise and more of a global sensibility. Bowers/Rosen 20-25 inches.

BOSTON — Top Wal-Mart executives told Wall Street analysts on Tuesday that there will be sweeping changes in the lagging $191 billion U.S. division, the company’s biggest.

The world’s largest retailer promised to bring “mass-clusivity” to its aisles with more stylish and pricy merchandise, launch sexier advertising and reduce internal bureaucracy. Its costliest holiday ad campaign will kick off earlier than ever, next Tuesday.

“We are nimble and we will be very different from the Wal-Mart you know,” said vice chairman John Menzer, who was tapped in October to run Wal-Mart U.S. after a successful run as the chief executive officer of Wal-Mart International.

H. Lee Scott, Wal-Mart’s president and ceo, said in brief remarks at the two-day conference in Rogers, Ark., that “the customer has the capacity to purchase if we put the right items in front of them.

Scott cautioned analysts not to conclude the $285 billion discounter would walk away from low-income shoppers. “Don’t think the whole company is all about Metro 7 [the new contemporary line] and George and 400-count sheets,” Scott said. “We have people selling the heck out of Tide and Clorox and deodorant.”

Wal-Mart U.S. will be using global insights to drive its business, Menzer said. Stores in Japan and Korea will be used to get an early read on electronics, while those in Argentina and Brazil, which are fashion-conscious markets half a season ahead of the U.S., will give insights on apparel.

The company has been “too opening-price-point focused,” Menzer said. “We have to be focused on being the best price, not just the lowest price.”

He cited $88 ladies’ boots, which will be sold at 150 stores, as a small run of merchandise for the chain. The majority of Wal-Mart’s footwear is sold for less than $20.

The company already is having success serving a higher-income customer in California. Scott said expansion there will be slower than planned, but that the supercenters in the state are among the most productive.

Traffic has been down in U.S. stores over the last nine months. After-tax operating profits have declined as expenses have crept up, and same-store sales have averaged 3.2 percent in the first half of the year, compared with 5.2 percent in the same period from the previous year.

This story first appeared in the October 26, 2005 issue of WWD.  Subscribe Today.

The top 800 domestic stores perform 10 times better than the bottom 800 stores, a gap that Wal-Mart is working to close. The retailer’s chief financial officer, Tom Schoewe, said Wal-Mart is 12 to 18 months away from seeing significant return-on-investment improvement for its domestic operations.

Chief marketing officer John Fleming said Wal-Mart needs to become relevant to more customers because growth potential with its core, price-conscious customer is “somewhat limited.”

“What we’ve done in the past isn’t necessarily going to work where we’re going,” he said. “We’ve had one singular message — ‘Always Low Prices’ — broadcast across the nation. Where we need to go is focused messages against key segments, delivered differently.”

The retailer’s holiday advertising is a “Home for the Holidays” campaign featuring the entertainers Destiny’s Child with Beyoncé Knowles, Garth Brooks and Queen Latifah, among others.

“We are doing an unprecedented amount of advertising in the first weeks of November,” Fleming said. “We know our customers don’t wait for Thanksgiving [to shop] and from last year, we know competitors don’t wait, either.”

Claire Watts, executive vice president of product development, apparel and home merchandising for the U.S. stores division, said the company just completed a customer-insight study of 13,000 women that generated five shopper profiles:

  • Norma: A pragmatist who wears basics and is the retailer’s core customer. ‘Norma’ is 20 percent of the overall population, but about 36 percent of Wal-Mart’s apparel consumers.
  • Carla: A young, time-starved mom who wants easy, convenient fashion choices. She is one of Wal-Mart’s main focuses and has been a core customer for rival Target.
  • Susan: A polished consumer looking to brands that keep her updated but classic.
  • Gracie: A young and hip consumer interested in buying as much fashion as she can on her budget. “She is Wal-Mart’s other main, new target,” Watts said.
  • Jen: The fashionista. “This is not a woman on our radar screen for a while,” Watts said.

“We looked at how much each spends, how often they are in Wal-Mart and their willingness to find us credible in fashion,” Watts said. “And we are going after Carla and Gracie.”

Watts said Metro 7, intended for Gracie, is performing well. Ditto George, which has been repositioned at the front corner of the ladies’ department on twice as many racks. George targets Susan and Carla shoppers.

Wal-Mart also shared other demographic insights.

Fleming estimated 84 percent of the U.S. population shops at Wal-Mart, but only 45 percent are “loyalists,” shopping frequently because of low prices. Within that segment, Wal-Mart believes it has niche growth opportunities with seniors, Asians and Hispanics.