Walmart Moves Back to Core Pricing Message

But Some Consumers May Be Finding Needs Better Met Elsewhere

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As Walmart increasingly returns to strategies that made it Earth's biggest retailer -- everyday low prices, broad selections, cluttered aisles and shelves piled high with discount merchandise -- some critics and early data suggest that what once worked may not anymore.

Walmart-style big boxes may be giving way to a return of smaller stores as a variety of smaller formats thrive. And while Walmart is highlighting low prices for everyone, it seems to be becoming more and more clear that it can't please everyone in every income bracket.

In ads breaking next month, Walmart will highlight its decades-old everyday low pricing by poking fun at the high-low strategies of competitors offering discounts on select products. The chain will also highlight its policy of matching competitors' advertised prices, a guarantee it's always had but hasn't talked about much in recent years.

Other ads from Martin Agency, Richmond, Va., will flag Walmart's broad selection and one-stop shopping as the retailer banks that higher gas prices will lead consumers to make fewer trips. Inside stores, Walmart has revamped shelves, piling fishing poles up toward the ceiling. And it's revamping product lineups to make sure it has "opening price point" items in every category, including smaller packages that fueled inroads by dollar stores in recent years.

"Walmart is retrenching to core principles that worked for them through the late 1980s and early 1990s, when the boomers here in their core family-rearing years," said Leon Nicholas, director-retail insights at Kantar Retail. But boomers are getting older, don't need to make big stock-up trips for growing families and increasingly prefer smaller stores, he said. Big stock-up trips generally appear to have declined, he said, and some younger households are shifting those trips online, where Walmart is a relatively small player compared with Amazon and Drugstore.com.

"Maybe the supercenter itself as a format has run its course in terms of providing growth," Mr. Nicholas said, though it remains highly profitable. Declines in same-store sales overall have continued, and Walmart projects same-store sales will remain flat to down 2% this quarter.

Mixed Results chart
Source: Consumer Edge Research tracking survey

The chain so far is having trouble winning back shopping trips and dollars it lost the past two years from middle- and lower-income core consumers, and it also appears to be turning off the group it made inroads with through its last strategic revamp, Project Impact. That initiative cleared promotional merchandise out of aisles and reduced assortments to make stores more visually appealing and easier to shop in for upscale shoppers. But as Walmart scaled back on Impact by adding products back to its shelves and aisles and returned to everyday low pricing, those shoppers have become less satisfied.

Data from a Consumer Edge Research tracking survey of more than 1,200 shoppers show shoppers at all income levels visiting Walmart less since August, with declines accelerating since October, led by households with incomes over $100,000. The survey also found shoppers with household incomes over $40,000 were more dissatisfied with the total shopping experience at Walmart.

At the same time, it's not clear Walmart's focus on opening price points and dollar-store packs will make much difference. Walmart's share of packaged-goods sales declined 0.6 percentage points last year, according to SymphonyIRI panel data. But dollar stores picked up only 0.1 point. Drug stores picked up 1.1 points of CPG share. And they did so not with smaller packages or rock-bottom prices but mainly by expanding offerings of food to gain more frequent shopping trips and add convenience, said Susan Viamari, author of SymphonyIRI's "Year in Review" report.

Credit: Note: Mass channel also includes some Walmart stores. Walmart channel numbers include supercenters and mass-merchandise outlets. Source: SymphonyIRI Group all-outlet consumer panel data

Walmart is testing or preparing tests of small formats -- including under-30,000-square-foot Walmart Express stores, with and without pharmacies, in Northwest Arkansas, Chicago and other yet-to-be-disclosed sites, as well as the 3,300-square-foot Walmart on Campus in Arkansas. The latter has performed better than expected since opening in January, said Walmart U.S. CEO Bill Simon, and other campuses have expressed interest in opening more.

But Kantar's Mr. Nicholas said the three biggest dollar chains will add 1,000 stores this year, while Walmart is only talking about rolling out hundreds within the next several years. Drug stores already are aggressively adding groceries to compete with Walmart. And Dollar General recently began testing a 15,000-square-foot format with expanded grocery offerings.

Ads focused on "broadest possible assortment" and savings on a broad basket of goods will just reinforce Walmart's image as a big-box operator at a time when it needs to move faster into smaller boxes and e-commerce, Mr. Nicholas said.

Another problem: Walmart is now nearly alone among major competitors in not having a loyalty or database program. Those programs have let competitors trade up their most-profitable customers and offer coupons or other discounts on products most meaningful to them, mitigating Walmart's price advantage, said Chicago-based shopper-marketing consultant Chip Hoyt. To counter these programs, as part of its price-match guarantee, Walmart is accepting other retailers' proprietary coupons. It hasn't matched double- and triple-coupon offers, but a spokesman said the policy is under review.

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