Story from Mercury News
The recession steered a new type of customer to Wal-Mart — deeper in the pockets and suddenly looking for bargains. Now the world's largest retailer has to figure out how to keep that customer when the economy recovers.So Wal-Mart is bringing in more brand names, ditching scores of other products and even redesigning hundreds of stores to give them wider aisles, better lighting and better sight lines.
It's more than just a cosmetic upgrade. That new breed of customer also spends about 40 percent more than the traditional Wal-Mart shopper, and the retailer senses an opportunity to accelerate its growth.
Take Aditya Krishnan, a 42-year-old lawyer from San Jose. He used to buy only light bulbs at Wal-Mart but now finds himself spending $150 a month there, including buying workout clothes he used to get at Macy's.
"If I am able to get good stuff at Wal-Mart, and I am able to save money, why would I change?" Krishnan asked. "I am seeing better brands, and the shopping experience is better" than before.
Wal-Mart says that's no accident. It's placing a big bet on the redesign of most of its 3,600 stores, started last fall. This fiscal year, it plans to redo up to 600 at a cost from $1.6 billion to $1.7 billion.
The prototype for the remodeling includes lower shelves to make it easier to see across the store, better lighting and wider aisles. Expanded electronics areas will include interactive displays to test video games and portable gadgets.
The store now carries brands like Danskin and Better Homes and Gardens, and its electronics section now stocks pricier products like Palm Inc.'s well-received new Pre smartphone.
Whether it all works, Wall Street analysts say, depends in part on how quickly the behemoth retailer can remodel and keep shoppers satisfied. Concerns about how Wal-Mart will keep its momentum have sent its stock down 13 percent this year.
The early signs are positive, putting pressure on the rest of the industry. Target Corp., whose sales have been hampered by its emphasis on nonessentials like trendy jeans, is expanding its fresh food offerings. Best Buy Co. is beefing up customer service.
"I believe a lot of what (Wal-Mart) is doing is working," said Joseph Feldman, a retail analyst at Telsey Advisory Group. "They are a threat to everyone."
"If I am able to get good stuff at Wal-Mart, and I am able to save money, why would I change?"Other discounters, including TJX Cos. Inc., which sells name-brand fashions and home furnishings, Costco Wholesale Corp. and BJ's Wholesale Club Inc., are focusing on how to hold on to new customers lured by low prices during the recession.
But Wal-Mart, which only three years ago struggled with cluttered stores, long lines, stiff towels and unattractive clothing, has a bigger hurdle to climb. And it has to move fast to win over people who still have negative feelings about shopping there.
"The service still needs to be improved, and the stores are a little sloppy," said Daniel Chou, 35, of Warren, N.J., who was at a local Wal-Mart to pick up a bungee cord but who says he rarely shops there.
Stock in Wal-Mart and a few other discounters such as Costco Wholesale Corp. have fallen this year as investors turn to beaten-down shares of more upscale companies like Macy's Inc. and Williams Sonoma Inc., which investors believe don't have much further to fall.
Wal-Mart, which topped $400 billion in sales last year, attracts more than 140 million customers per week. But to get them to buy more than just groceries, which account for about half of annual sales, it's paring its product lineup and making room for better brands.
Consultant Burt P. Flickinger III estimates the remodeled stores are carrying 10 to 15 percent less inventory, particularly getting rid of no-name labels.
The shift risks turning off longtime customers who are looking for only the cheapest products. It's happened before: The company had to dump Metro 7, its in-house clothing line launched in 2005, because it turned out to be too trendy for its general clientele.
Wal-Mart executives say 17 percent of its traffic growth in February from new customers, and they're spending 40 percent more per trip. More than half of those shoppers living in households that take in more than $50,000 a year.
While that may not be considered affluent, it's a big departure from Wal-Mart's core customers, of whom one in five does not have a bank account or has limited access to financial services.
To keep prices low while offering better products, Wal-Mart is slashing its own costs in little ways. The Angus ribeye steak being sold at Sam's Club at 25 percent below competitors' prices is paid for in part by a switch to shorter straws at its cafe, saving $52,000 a year, says spokeswoman Susan Koehler.
A recently converted customer is Judy Safern, a 42-year-old public relations executive from Dallas who used to buy her children's clothing at Galleria mall and groceries at Tom Thumb supermarket.
She now says she hasn't been to the mall in a year and figures she saves several hundred dollars a month by buying most clothing and food at Wal-Mart. "I basically buy everything there," she said.
