Wal-Mart’s Era of Great Confusion

By Jim Prevor, Editor-in-Chief, Produce Business

The BlueOcean Market Intelligence Report on Wal-Mart is insightful, but, as with all studies that focus on interviewing consumers, it can only give us insight into the class of consumers that are actually interviewed. This is a shame because it is, of course, not surprising that Wal-Mart should find its customers affected by the national economy. When Ms. Fredrick explains that “…the overall state of the economy continued to negatively affect customers’ willingness to shop and spend,” it sounds perfectly reasonable.

What it doesn’t do, though, is translate into an explanation for why Wal-Mart’s same-store sales have been declining for two years. After all, times are tough not just for Wal-Mart’s customers but for many, indeed most, Americans.

So what one would expect is that as Wal-Mart’s customers — typically the consumers living paycheck-to-paycheck — suffer, one would think that the next socio-economic class up, also hurt by the recession, would abandon more pricey venues and migrate their shopping to Wal-Mart. Yet that doesn’t seem to have happened, or at least not enough to compensate for the pocketbook contraction among Wal-Mart’s core customers. The intriguing question, of course, is why? Why haven’t consumers traded down to shop at Wal-Mart?

BlueOcean surveyed only those who shop at Wal-Mart, so we can’t say for sure, but there are hints in its two studies of why things are not happening for Wal-Mart as the company once expected they would.

For example, the study points out that high gas prices are inducing consumers to reduce their shopping trips to Wal-Mart. This is a shocking development. Since the development of the Wal-Mart Supercenter, high gas prices have been a plus for Wal-Mart and a disaster for everyone else. Why? Simple… the giant Wal-Mart Supercenter, with its promise of one-stop-shopping, encouraged consumers to consolidate shopping trips to save on gas and save on the purchase price of their shopping items.

If high gas prices no longer work in Wal-Mart’s favor, and both sales statistics and the BlueOcean study say they do not, that is a sea change and the study provides an inkling as to what, precisely, has changed.

Ms. Frederick writes: “…many shoppers, including Wal-Mart’s top customers, are reducing their Wal-Mart shopping trips, in part due to high gas prices and an ability to find bargains closer to home.”

High gas prices wouldn’t necessarily reduce shopping trips or spending at Wal-Mart; it is high gas prices COMBINED with the “ability to find bargains closer to home” that does the trick. Anyone know how to spell Aldi, Save-a-Lot, dollar stores, etc.?

Many of Wal-Mart’s problems are unforced errors. The decision to impose Project Impact —basically a rationalization of SKU count without extensive testing — simply boggles the mind.

It is clear that the executives high up in the ranks at Wal-Mart were confused about the core appeal of the supercenter concept. They must have been blind to the fact that the big advantage a supercenter had over an Aldi was the supercenter’s grand scale, and thus,  its ability to handle an extensive variety.

Perhaps the most disturbing finding for Wal-Mart in the BlueOcean study is that in the second wave of the study, consumer assessments of Wal-Mart’s price competitiveness continued to decline. As Ms. Frederick puts it: “Opinions about Wal-Mart’s price competitiveness weakened in this wave compared to the last. Fewer grocery shoppers call the store the ‘low price leader’ or say Wal-Mart offers ‘good value for the money,’ compared to the 2010 wave of the study. Additionally, nearly a quarter of those who made grocery department spending cuts said that other retailers’ pricing and promotions are attracting them to their stores more often. A third of these shoppers say competitors are more affordable, up nearly 10 percent.”

So there you have it. The issue is not whether Wal-Mart can rearrange the fixtures to be more appealing or whether Wal-Mart can tweak its assortment to better satisfy customer needs. The issue is whether Wal-Mart is prepared to lose its crown as America’s value leader.

There are many signs that this is the case. While Wal-Mart’s same-store sales have been declining for two years, its profits have been rising. This indicates that Sam Walton’s old notion that Wal-Mart should be a buying agent for the consumer and that efficiencies should be passed along to the shopper has been cast aside.

Store managers, who in days gone by would send their employees into a competitor to buy up a sale item if Wal-Mart couldn’t match it, have been reigned in. They no longer have marching orders to make sure Wal-Mart is never beaten on price for key items.

Wal-Mart has lost a lot. On items such as produce, it used to have vendors who bled Wal-Mart blue; then Wal-Mart abandoned its old relationships so vendors care less. It used to have employees who loved the place; then Wal-Mart abandoned its profit share plan that made everyone a stockholder. Now its employees care less. Consumers used to know that Wal-Mart offered the best value; now the old banners about Satisfaction Guaranteed and Always Low Prices have disappeared. So consumers are not as committed.

To lose the loyalty of even one of these three groups — vendors, employees or consumers — can be catastrophic to any retailer. To lose the loyalty and enthusiasm of all three is quite a blow.

Wal-Mart still has many advantages, but this BlueOcean Report shows it has far fewer than it once did.