BENTONVILLE, Ark. — Wal-Mart Stores here made a lot of noise last week about lower prices and better assortments, but industry observers questioned the potential impact on conventional supermarkets.
“There seems to be less here than meets the eye,” Jim Hertel, managing partner at Willard Bishop Consulting, Barrington, Ill., said.
Seeking to regain its sales momentum after a relatively soft year in 2010, Wal-Mart said it hopes to “reestablish one-stop shopping convenience” by following four initiatives:
• Offering low prices “every day on everything,” with an increased number of competitive price checks by buyers and store personnel and stronger efforts to work with suppliers to lower the cost per item and pass those savings on to customers.
• Broadening its assortment by 8,500 items, or 11% in an average store, to bring back “customers' favorite local food and consumables” after cutting back on inventory over the last few years.
• Simplifying its Ad Match program by eliminating the need to shop around to find lower prices and simply agreeing to match lower advertised prices at the register — a program that involved “extensive associate training to ensure the policy is executed consistently across all stores.”
• Launching a new national advertising campaign to explain its new policies — including ads that spotlight local Wal-Mart associates and their stores — with new in-store signage scheduled to appear nationwide next month.
Hertel expressed skepticism about Wal-Mart's promises.
“In terms of assortments, Wal-Mart said at least a year ago that its inventory cuts were too deep, so announcing it will broaden its assortment has me scratching my head because I would have thought Wal-Mart would have returned many of those items to the shelves already,” he said.
“They're saying they will be adding back products every day, but if they had added 25 items a day for the past year, they could have already added back 8,500 items. That's not that big of a task for the world's largest retailer.
“And I'm not sure how much matching prices is going to get them in today's environment.” Hertel added. “If you go back six year or more, Wal-Mart had the lowest prices. Then it had low prices. And now that it's had negative comparable store sales for several quarters, a promise to match prices is not going to be enough to turn the clock back to when comps were outpacing the industry.
“And if you want to be known for low prices, then matching someone else's low prices just gets you a tie, and that still doesn't give consumers a compelling reason to go there.”
According to John Rand, director of retail insights for Kantar Retail, Cambridge, Mass., “For years the issue for Wal-Mart has been whether it could attract a new and different shopper, and I don't think this effort will change anyone's mind. The people who have been on the fence will still be on the fence.”
Another industry observer, who asked that he not be quoted by name, questioned whether Wal-Mart's latest promises will be compelling enough “when Aldi has lower prices if you're willing to buy private label; Costco has lower prices if you're willing to buy in bulk; supermarkets have lower prices if you buy on promotions; and the Internet has lower prices if you're willing to buy outside a physical store.”
Andrew Wolf, managing director for BB&T Capital Markets, Richmond, Va., said Wal-Mart's moves could drive more purchases by existing customers.
“The broader assortment is certainly a positive move,” he said, “and it returns Wal-Mart to one of Sam Walton's original principles, which is for Wal-Mart to be the buyer for its customers — something it had moved away from when it cut back on SKU count.
“As for price, it appears Wal-Mart will definitely be more rational. For example, rather than selling a 40-ounce bottle of Heinz ketchup below cost for $1, as it did last summer, it has it on an end-cap for $1.98, down from $2.66 a few weeks earlier. So Walmart is not overdoing it — it realizes it can make a statement with a more rational price when the rest of the market is higher.”
According to Rand, “For a long time, it seemed Wal-Mart couldn't make a mistake, but that's not true anymore.
“No shoppers are going to take anyone's word about any offer — it comes down to trust and loyalty, though there are still plenty of Wal-Mart shoppers who are loyal.”
Wal-Mart never lost many households as it trimmed its assortments, Rand pointed out, though it did lose on their total spend. “But the company's statements about increasing assortments are being looked at with a certain amount of skepticism by the industry, because regardless of the assortment, Wal-Mart's pricing is not as sharp as it once was. So the question is, can you go home again?
“A lot of retailers in other channels have closed the price gap with Wal-Mart, including Kroger, whose comps have been strong for several quarters in a row while Wal-Mart's sales have been slipping.
“So if Wal-Mart's new ad campaign in just a re-statement of what it used to do, I'm not sure it will change anyone's mind. And even if it is changing the economics of the stores and lowering prices further or sacrificing profits to lower margins, it's not clear how deep that goes.”
The industry observer called Wal-Mart's announcement “a back-to-the-future program that may or may not work. When Wal-Mart was strictly everyday-low-priced with a lot of assortment, it had an edge over many supermarkets, but grocers today have more tools to fight Wal-Mart, including price optimization software and loyalty card promotions.
“Wal-Mart itself has acknowledged it lost some trust with consumers when it went to more promotional pricing, though it has essentially held onto its lower-income bread-and-butter customer.
“Now it's saying ‘we're back,’ and the question is, is it too late? That what Wal-Mart is going to find out.”