Wal-Mart sees habits change

29 April 2011

BENTONVILLE: Wal-Mart, the retailer, believes consumers "know more about pricing than ever", a trend encouraged both by the recession and technological change.

Mike Duke, Wal-Mart's chief executive, told the Wall Street Journal data from the 140m people visiting its stores every week showed shoppers were facing greater challenges than a year ago.

"Our core customer is still under a lot of pressure," he said.

Duke pointed to the continuing strength of the "paycheck cycle", where buyers splash out upon receiving their wages, but are then forced to cut back as resources dwindle.

"They've got very limited income left to get through the end of the month," Duke said.

"We can see the purchase pattern of smaller pack sizes, less discretionary spending, often just the basics to get through the end of the month."

Primary contributors to this situation are inflation and, in particular, surging fuel prices, building on the negative effects wielded by the downturn across the employment market.

More specifically, these combined processes have transformed the attitudes and behaviours of Wal-Mart's central clientele.

"Over the last couple of years, the economic crisis has bought even more focus on value and price," said Duke.

"The customer has been looking for savings and real emphasis on opening price points. The customer really knows more about pricing than ever."

In-house studies conducted by Wal-Mart show new media tools like the internet and smartphones are also exerting an increasing influence.

"We do our own research, and understand how customers look at the price of products. We've seen that the last couple of years have bought even more focus on understanding price," Duke said.

"Technology is making that available … at a greater pace."

In reacting to such developments, Wal-Mart has recently acquired the social media platform Kosmix, and is testing an online grocery delivery service in San Jose.

"Social networking is much more a part of the purchasing decision," said Duke.

"Consumers are communicating with each other on Facebook about how they spend their money and what they're buying."

"Wal-Mart will be a leader in this area."

Although Wal-Mart has recorded seven successive same-store quarterly sales declines, Duke suggested these figures were not wholly attributable to economic conditions.

"Frankly, I think we've gotten away from some of those core principles," said Duke.

"Sometimes, it takes a wakeup like this to cause you to a step back, look at your business internally, not worry about the external, but to really be focused internally about what we need to do to grow our traffic and grow our sales."

In response, Wal-Mart is seeking to leverage the values traditionally exhibited by its "core business" since founder Sam Walton started the company.

"It really is back to the basics of everyday low price, wide assortment [and] having what the customer needs with one-stop shopping," said Duke.

"With rising gasoline prices, one-stop shopping becomes more important."

Such an initiative is particularly vital as intensified competition raises the pressure on all retailers.

"When you lose a customer's shopping trip or you lose some spending of the customers, it takes time to get it back," said Duke.

Data sourced from Wall Street Journal, CNN, Marketwatch; additional content by Warc staff