COMMENTARY: Wal-Mart’s Second Story Act
Issue: Wal-Mart Adds Second Stories
Commentary By: David
The Wall Street Journal reported yesterday that Wal-Mart has added a second or third level in at least 20 of its stores in markets where expensive or tight retail space has constrained the overall store footprint.
Is this a big story? In the larger sense, no. Wal-Mart operates 3,900 stores in the United States alone. The Wal-Street Journal bases its coverage on the fact that it shows a shift in Wal-Mart’s strategy, a willingness to veer from the ‘cookie-cutter’ strategy that has fueled its growth over the past two decades.
This advertising blog sees something deeper in this decision, a small but important signal for a larger shift in the retailer’s relationship to the world. (We have not called this a metaphor because we think it is more than a metaphor. See commentary here on the American Press Institute Morph blog on when a metaphor is not just a metaphor.)
What these baby steps onto the second floor tell us about Wal-Mart is simple: Wal-Mart is becoming a Department Store. It is not the second floors that did this. It is many other things, which culminated in this slight but revealing move by Wal-Mart. But we sniff blood in the air and are willing to risk ridicule by suggesting that Wal-Mart has seen its greatest days.
Could we possibly be arguing that the greatest retailer and largest (and second most valuable after Toyota) company in the world is headed the way of the dinosaur, eight-track tape and lava lamps?
Well, not exactly. Department Stores are not exactly dead as our friends at Bloomingdales, Macy’s, Nieman Marcus and others will undoubtely tell us in the next few hours. But they are also not relevant for the majority of consumers and have more or less retreated to a niche. Even part of that niche - as anchors of the suburban shopping mall - has retreated as big box retailers like Home Depot are being chosen to anchor new malls.
In fact, news was broken in the New York/NJ region this week when it was announced that an old mall would reopen with a Home Depot and - yes, you guessed it - a Wal-Mart would be the new anchors.
So what exactly is happening to Wal-Mart? We had an interesting conversation with Paul Nunes at Accenture (who is the author of Mass Affluence: 7 New Rules of Marketing to Today’s Consumers) on this issue. He suggested that Wal-Mart very successfully ‘rolled-up’ a lot of independent stores who catered to an important niche of middle class consumers. Now that Wal-Mart dominates that niche it is confounded in its growth by a demographic shift which has significantly expanded the number of households with incomes over $70,000. And Wal-Mart is not positioned to serve these households because both their needs and their shopping paradigm are very different from the one that exists at Wal-Mart.
Even worse, Wal-Mart’s chief rival Target has spent a decade carefully positioning themselves to serve this expanding demographic segment - and more importantly the greatly expanding psychographic population who carry the same attitudes as this new luxury-seekers. “Design for all” is the touchstone of Target’s movement on this front (see our commentary on this trend here.)
So why is the second story news significant? Because it shows that Wal-Mart has literally reached the physical boundaries of its market segment. Which should be fine, except that Wal-Mart is a publicly traded company. Public companies cannot exist fruitfully without revenue growth. Were it private, Wal-Mart could cease domestic expansion efforts and shift all of its focus on serving the emerging needs of its core audience. Instead, it is moving more and more places, and confusing its core consumers in the process.
There was a strong signal of this trend in November on Black Friday, when Wal-Mart used ‘door busters’ and strong promotional pricing to attempt to boost sales (see our commentary here). Wal-Mart had lost volume in 2004 by attempting to hold prices through the promotional holiday period. The problem is that Wal-Mart is an ‘everyday low price’ (EDLP) retailer. And Wal-Mart has huge brand equity invested in the concept that it always has the lowest prices. So predictably, the move caused confusion, failed to generate significant sales and resulted in bad publicity when consumers were trampled (see our post-Black Friday commentary here.)
Wal-Mart’s appearance as an anchor store in shopping malls is telling, too. This is higher-priced real estate and will ultimately affect Wal-Mart’s ability to compete on price.
The last and possibly the worst sign for the Arkansas giant was when they promoted John Fleming to the post of Chief Marketing Officer. Fleming is a 19-year veteran of - guess where? - Target. And, not surprisingly, once put in the drivers seat after a stint running the marginal online property Wal-Mart.com, Fleming sought to put an old stamp on his new business (read an interview where he discusses this here). Under Fleming, Wal-Mart suddenly decided to advertise in Vogue (read our commentary here) and engage in all other manner of Target-like positioning and maneuvers. You can’t really blame Fleming - marketers are a lot like commercial artists and if they’ve been working in one style for nearly two decades there is a pretty good chance that they are wedded to it.
All of this has been a disaster for Wal-Mart. It muddies the formerly crystal-clear brand positioning and confuses the core consumer. Al Ries or Jack Trout would undoubtedly accuse Wal-Mart of trying to broaden its appeal while in the process undercutting its claim to expertise, which is the foundation of the brand positioning. If Wal-Mart does not stand for low prices, it stands for nothing.
So in the world of real-estate, a few second stories for Wal-Mart is a small story. But in the brand world, it is one more sign that a great American icon is lost. And the prospects for regaining its path are dim.
