Walmart is worried about their brand.
Let’s see, as Numero Uno in the Fortune 500 Walmart’s profits increased from $14.4 billion in 2009 to 16.4 billion in 2010. Revenue increased a little over 3%. The number of employees is also up 5% in the period (source: Wall Street Journal).
So where’s the problem? Seven consecutive quarters of declining sales in U.S. stores open at least one year is where.
When asked about this, their CEO, William Simon, told a WSJ interviewer: “I think we tried to stretch the brand a little too far.” Ignoring the delightful irony of that statement coming from what has to be one of the leading retailers of Spandex and skinny jeans, it does beg the question of how far is too far for a brand?
Walmart’s own analysis goes something like this: In an effort to attract a slightly more upscale customer, they remodeled stores, removed the clutter by streamlining their selection and got away from the everyday low price approach that was their bread and butter for years. This was clearly a response to Target and their so-called “cheap chic” brand strategy, which has moved them all the way to 30th in the Fortune 500 and 4th largest discount retailer over all.
But a leader is open to attack from all sides and while Walmart was dueling the rapidly-growing Target with the questionable strategy of trying to be more like them, budget stores such as Dollar General, Family Dollar, and Dollar Tree have been eating Walmart’s lunch and sending the bill to Bentonville. These three cut-price, sound-alike brands are each Fortune 500 firms in their own right (if you knew that I’ll buy you a corn dog), with growth rates of 9% a year or more in sales and have opened literally thousands of new stores during the same period that Walmart has slumped.
Walmart’s strategy for a tighter brand waistband is to refocus on their core customers, which are households earning $30-70,000, restore much of the missing product selection and look at building smaller size stores in urban markets that have often shunned the giant retailer, while at the same time allowing dollar store clones to proliferate.
It would seem that Walmart has finally realized that even the undisputed heavyweight champion of retail cannot be all things to all people, though they are arguably more things to more people than any other brand.
But knowing the limits of a brand is critically important to its ongoing success. Some stretches are obvious. We can be sure Rolex is never going to sell $99 watches. Others are less so: VW has struggled to sell cars and SUVs in the luxury category. ($50,000 plus for a VW?) On the flip side, Mercedes has tried for 20 years to find an entry level sedan that is the equivalent of the stellar BMW 3-Series, but has been unable to sell smaller models in the U.S. that perform well in other countries.
At the very heart of the Walmart struggle is a classic case of the marriage of brand and price point. Consumers tend to rank brands by price point and usually within a narrow range. Brand managers respond by creating different brands for each price band. So rather than, say, Budweiser Gold, Budweiser and Bud-for-a-Buck, we’re offered Michelob, Budweiser, and Busch brands. Walmart tried to move up market, but in doing so, slightly loosened their grip on the low price dominance they’ve controlled for two decades now. The Walmart brand is about low price in the consumers’ mind. Moving away from that was indeed a bit too much of a stretch.
If you’re the Senior Vice President of Ever-Increasing Sales at Walmart, perhaps a 1% decrease looks like the end of the world, but I expect the giant retailer will adjust and continue to measure their profit growth in billions. As a brand, they make far more good decisions than bad ones. But Walmart’s recent struggles serve notice that the reach of even the strongest brands can still exceed their grasp. And while Walmart was focused on the market above them, part of the market below them got out of the barn. The next few quarters will tell us if they were able to shut the door in time.