This week, the nation's biggest retailer detailed its $2 billion plan to "reinvest" in low prices, expressly in areas such as food and consumables, to drive more traffic to its 3,868 U.S. stores.
During a presentation at a CIBC World Markets conference, Duncan Mac Naughton, executive vice president and chief merchandising officer, also outlined Walmart's other key priorities: to add more nutritious and high-end food to stores, such as USDA Choice beef; rework its poorly performing clothing business; and enhance its appeal to ethnic minorities with more merchandise tailored to their tastes.
Restoring its Bargain Cred
Walmart's move to regain its status as the nation's bargain emporium comes in response to the rise of dollar stores, which won over large swathes of new shoppers during the recession. It's also a course correction aimed at remedying its own missteps.
Over the past three years, the retailer unleashed a bevy of promotions that muddled its original everyday-low-price message, Mac Naughton said. That led customers to begin to question whether they could still expect Walmart to have the lowest prices, he said. The promotions "fractured some of that trust," said Mac Naughton. "That's why we're so focused on consistent pricing now."
Making sure the price is right is crucial as the U.S. consumer "is still facing some significant headwinds," Mac Naughton said. Although the recession has been officially over for a few years now, 23 million Americans are still officially unemployed, gas prices are high and rising, and economic growth is anemic, he noted.
Making Sure the Price is Right
Walmart has turned to Nielsen, the ratings company, to provide granular data on how other U.S. retailers price their goods to make sure its own merchandise is well priced. And the retailer is getting its bargain-spot message out to shoppers with new TV spots that trump its everyday low prices and price-matching policies.
In food, for example, the company will now match competitors' lowest price on beef.
Walmart is also working to keep costs low on health and wellness products such as over-the-counter medications and pharmacy drugs in a bid to "embrace some of the people in the U.S. who have lost some pharmacy benefits," he said.
The renewed focus on low prices is expected to erode profit margins somewhat, but that's OK with Walmart, Mac Naughton said. The chain intends to offset that by boosting productivity.
Back to Clothing Basics, Appealing to Diverse Shoppers
While pricing credibility is a new problem for Walmart, it's plagued department stores for years. To that end, J.C. Penney (JCP) and other retailers like regional chain Stein Mart are now addressing the issue by eliminating sales events and switching to everyday low price models.
Beyond its renewed pricing push, Walmart has been struggling to fix its lackluster clothing department. A few years ago, the chains apparel strategy included a broad move toward more upscale fashions. That strategy failed. Today, it's "focused on two things: quality and basics," Mac Naughton said.
Now, about 50% of clothing sales are expected to come from basic items like underwear, socks and jeans. "It's that simple: That's what the customer wants [from us]," he said. Most of the remaining mix (40%) will be fashion basics such as polo shirts -- "nothing too crazy," said Mac Naughton. Just 10% will be devoted to trendy fashion items.
And while Walmart has always prided itself on crafting what it calls stores of the community, this is the year the chain is fine-tuning its food and non-food merchandise to more effectively appeal to Hispanics, Asians and African Americans, in part by leveraging Nielsen data, Mac Naughton said.
These shoppers represent a "huge opportunity," he said.
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