The Wall Street Journal reports Wal-Mart’s biggest sales decline in 28 years. Factors cited also affected other retailers – bad weather, a change in the National Retail Federation’s financial reporting timeline, tax refund spending, higher gas prices. Which leaves us with another factor – generally questionable business strategies.
For one, if Wal-Mart is already widely known for its massive bulk savings, why did it try to woo more affluent shoppers last August? It’s likely because in the long-term, a company cannot thrive by providing cost savings to customers alone. There is little customer loyalty towards low-cost providers, as they can defect just as easily to other rivals.
The attrition rate of such low-cost providers, however, has been cleverly tempered down due to loyalty card programmes and tie-ups with other services that bond customers to continue accumulating rewards points with the incumbent retailer. On the other end of the scale, though, high-end providers may have fewer customers but bigger margins, stronger branding and higher customer loyalty.
A previous BusinessWeek report has two very apt quotes from retail experts who were inevitably right about their scepticism:
“Wal-Mart finally recognized that retail is not just about prices,” says Patricia Edwards, managing director and portfolio manager at Seattle-based Wentworth Hauser & Violich, a money manager with $8.2 billion in assets including Wal-Mart shares. “To be good at retail you have to have not just good prices but the right shopping experience; people can be put off by rude clerks, dirty restrooms, and long lines.”
“I don’t see the possibility of attracting different types of customers just by raising wages,” says Barry Shaked, chief executive of Retalix, which provides technology solutions to the retail and food industry. In fact, Shaked believes that Wal-Mart is making a mistake by trying to go upscale. “Wal-Mart is trying to have something for everyone and in the process it will lose its current customer,” he warns.
Another problem that Wal-Mart experienced was the lack of ‘findability’ of products on the shelves. Customers are making less visits but spending more each time. This makes sense as Wal-Mart isn’t exactly your neighbourhood convenience store (a dying breed these days) but a place from which you’d buy everything you need for a while. To quote:
The average Wal-Mart customer spends 21 minutes in the store per visit, but that customer finds only seven of the 10 items on his or her list, according to Chief Marketing Officer Stephen Quinn. The key to Wal-Mart’s sales growth is making it easier for the customer to find that eighth and ninth item.
I’m surprised that Wal-Mart customers currently only achieve a 70% success rate. Couldn’t they ask staff for help? It doesn’t sound like it’s just about product placement, though I’m sure the sheer volume of goods available has been a classic example of the paradox of choice. This problem would affect every other large-scale retailer as well, though.
Another reason, which is not covered in the WSJ report, could be bad public relations – though that is harder to measure. There are institutions such as Wal-Mart Watch, a Wake-Up Wal-Mart campaign, an anti-Wal-Mart digest and a number of other anti Wal-Mart links. There is even a feature documentary, Wal-Mart: The high cost of low price.
And, who wants to read a fake blog?
Technorati tags: Wall Street Journal, Wal-Mart, business, PR