Wal-Mart: more than just low prices?

In the current economic situation, it was to be expected for Wal-Mart (WMT) to thrive. It has always offered the lowest prices in groceries and other basic goods. Yet, in the good times, many consumers would refuse to shop at Wal-Mart for issues ranging from convenience all the way to, very simply, status. In the face of rising prices and economic uncertainty, those issues are mostly gone for a good chunk of the population. Consumers will do whatever is necessary to stretch their paychecks. Consequently, Wal-Mart has been able to report sales growth quarter after quarter for over a year now. With it, we’ve also seen its stock price increase nicely, from the low 40’s back in October 2007 to $63 last week.

Now, this growth has not happened just out of pure inertia. Wal-Mart has been very conscious of the opportunity the economic downturn represented for the company. As a result, it very purposefully refocused its marketing efforts to attract a wider range of middle- and upper-middle-class embattled consumers by positioning itself as the best alternative to preserve the lifestyle they are clinging to.

Wal-Mart’s campaign “Save money. Live better” is an excellent effort in that direction. In the past, Wal-Mart's communication focus had always been around its low prices, under their “Always low prices. Always” creative platform. Their target audience was comprised fundamentally by cost-conscious, low-income consumers. Even though this was the promise that made it a retail giant, during the years of economic surge this approach was actually affecting Wal-Mart negatively. As consumers’ disposable income rose, Wal-Mart saw more and more consumers turning to retailers that offered not only good prices, but most importantly, emotional value: higher quality, better design and a more pleasant shopping experience. Target is the best representation of that trend. Wal-Mart was unable to reinvent itself in order to leverage that trend and stem the outflow of consumers. Even if it wanted to do it, its strongly cemented position as the value player meant it lacked the credibility to reposition itself. That just changed. As indicated, the economic downturn and the recalibration it has generated in the consumers’ priorities has provided Wal-Mart with the opportunity to re-build its image among an audience willing to listen, and the company is taking it.

Wal-Mart’s communications are not anymore just about price rollbacks. Instead, the “Save money. Live better” TV commercials are high-quality depictions of situations and events that consumers relate to high quality of life. Moreover, the campaign does a great job at going deeper and touching emotional chords in the consumers. It really appeals to the emotional drive of making the most of your money in order to take care of your loved ones. In that sense, the campaign is very insightful and goes beyond the rationality of low pricing. It is about providing what is necessary for those you care about to enjoy a better life. Very well done!

I am encouraged by this brilliant re-direction in Wal-Mart’s communications. I think they really found the right approach to re-define their business in a way that will make an ample segment of middle-class consumers to reconsider Wal-Mart.

Nevertheless, the communications platform is just half of the job. Indeed, Wal-Mart is doing a great job in leveraging the opportunity provided by the environment to drive new consumers to the stores. Wal-Mart has been able to appeal to a larger group of consumers and has gotten them to shop in their stores; they will continue doing so while the economic situation is still adverse. But in order to generate organic, sustainable growth, Wal-Mart must also be able to retain them when the situation improves. And here is where I remain skeptical. The Wal-Mart shopping experience is still sup-par, if not outright dreadful. Messy stores, out-of-stocks, apathetic, nowhere-to-be-seen and unhelpful associates, low-quality merchandise and unacceptable long lines at the few registers that are open at any given time still plague the experience at Wal-Mart. At Wal-Mart, you don’t enjoy the experience: you endure it. If this is not corrected, my view is that we’ve seen everything the stock has to offer in terms of returns. The new consumers Wal-Mart has been able to generate will flee once the economic pressure subsides.

Wal-Mart has a brilliant opportunity to re-invigorate its franchise. In terms of communications, they’ve done the right things. If they start addressing the issues in their consumer experience model, this power-house may once again become a prime core stock to hold in your long-term portfolio.