In an effort to make further inroads into additional markets, Wal-Mart is getting a little uppity.
Wal-Mart Stores has apparently decided that everyday low prices in small-town America [will] only take you so far.
In an effort to kick-start a share price that has lost a third of its value since early 2002 — while the Standard & Poor's 500 index has risen 17 percent and discount rivals Target and Costco Wholesale are also up — the retail behemoth seems focused on the urban and upscale suburban markets as the final frontier of Wal-Mart's enormous growth.
OK, so it's not Saks, but hey, maybe you'll start seeing big name stars wearing Wal-Mart brands. Well, maybe not.
Any good business knows you have to keep moving forward.
Indeed, the addition of upscale products in key future growth areas is an important tool to attract new customers without alienating the company's core shoppers in search of the lowest prices for basic goods. At a 203,000-square-foot test store in Plano, Texas, an upscale suburb of Dallas, Wal-Mart is showcasing expensive jewelry, $500 bottles of wine, plasma TV sets and other expensive items along with organic foods. Now, some of those items are trickling into other stores.
Wal-Mart is in direct competition with Target, and Target has a more upscale feel to it. I think this is a quite predictable move on Wal-Mart's part.
Mark Husson, a stock analyst who follows Wal-Mart for HSBC, thinks the fact that consumer tastes gradually change over time makes the product additions a good idea. To remain stagnant, he says, would risk becoming the next Woolworth.
Yikes!
"Target has managed to keep everyday low prices on most things, but also has some upscale items," Husson says, adding that offering ten toasters that all price between $15 and $25, as Wal-Mart has typically done, yields no real variety. Add a couple of more expensive options to the lineup, and traditional Wal-Mart shoppers who aspire to something more won't abandon the store once they get there.
That's a great point. But there's another one. Recently Wal-Mart picked up the cost of insurance for 150,000 employees. Critics have been very vocal about Wal-Mart's insurance policies.
Pacifying the critics is indeed important, say analysts, not because their anti-Wal-Mart campaigns affect the shopping decisions of the company's core rural customers (they don't), but because these critics have the ear of liberal politicians who dominate urban legislatures. And it's these bodies that have the power to keep Wal-Mart from building in the cities. Already, the company moved a planned Chicago store to a nearby suburb after the city council tried to set worker wages.
And that was a bone-headed move by Chicago politicians. They lost a huge business asset and a lot of tax revenue because Wal-Mart wouldn't let them run their business. Now they have nothing. Nice going.
So the giant "big box" monolith is proving it's willing to change its business model as the market dictates. Good business strategy it seems to me.
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