This story first appeared in the April 12, 2011 issue of WWD. Subscribe Today.
Retail analysts may have been underwhelmed by Wal-Mart Stores Inc.’s new strategy unveiled Monday, but investors seemed more impressed, sending the company’s stock up slightly to close at $52.82, a rise of 0.28 percent, on the New York Stock Exchange.
“This is frankly not what Wal-Mart needs to do to correct its issues,” said R.J. Hottovy, a retail analyst at Morningstar. “Careful and measured are words to describe the process. It’s not something that’s going to change overnight. Wal-Mart underestimated how much brand equity some brands they carried have. [Removing them] did push some consumers away.”
Wal-Mart launched a new national ad campaign Monday with a three-prong approach. One part of the campaign states the retailer is returning to shelves 8,500 products that were previously removed. According to sources, about 12 percent of the 142,000 total stockkeeping units in a typical store were removed, which translates to 17,000 items. In-store signage screaming “It’s Back” to identify returned products will be on shelves in May. To make room for the products, Wal-Mart said it’s raising shelf heights, a turnaround from a previous edict to lower them to improve sight lines and declutter stores.
“It seems Wal-Mart is asking its customers for forgiveness and hoping consumers are aware of the changes it made,” said David Strasser, a retail analyst at Janney Montgomery Scott. “Low prices matter. I think it is that core customer at the bottom half of the economic ladder who is really struggling. As far as the strategy’s impact on margins, I think it will be modest. It was about cleaning the store. Some of those products had great margins.”
A main thrust of the ad campaign is to help consumers better understand Wal-Mart’s low-price promise. The retailer said it’s working with its suppliers to lower costs and pass those savings on to consumers. To some Wal-Mart observers, it sounded like déjà vu. The retailer has touted its low-price promise often, including during the competitive holiday season.
Wal-Mart also wants to make consumers aware of its simplified ad match strategy. According to the new guidelines, customers don’t have to bring in a competitor’s ad. Signs in stores said a local competitor must be located within 15 miles.
Carol Spieckerman, founder of Newmarketbuilders, said, “I don’t see this as a change in strategy as much as a change in the marketing of an existing strategy. Whenever Wal-Mart says low prices, everyone assumes they’re the lowest prices. I think Wal-Mart would be satified with low prices on the right products.”
“They’re going to become a lot more sensitive to low prices,” said Bill Emerson, president of Emerson Advisors. “It’s all about the assortment. Driving the comp business is the only way Wal-Mart’s going to get its stock price up.”
Wal-Mart previously said smaller-format stores will have their own pricing challenges. “As Wal-Mart starts to open hundreds of smaller units that will be up against dollar stores and discounters, it’s got to perfect its pricing strategy,” Spieckerman said. “Other retailers like dollar stores and Target did a pretty brilliant job with their value propositions. Wal-Mart is saying value and selection are back. They’re bringing in premium cosmetics brands such as Hard Candy and Kinerase. Wal-Mart can make more money on premium and exclusive brands. The big opportunity is to bring other categories up to the standards they’re setting in cosmetics.”
Wal-Mart wants customers to make its stores their preferred destination for everything. “Wal-Mart shoppers are deal seekers and there’s a lot of promotions going on all over town,” said Robin Sherk, a senior analyst at Kantar Retail. “Wal-Mart is asking customers to trust them. ‘Will you be willing to do a one-stop shop here?’ I think they’re asking a lot from consumers.”