Walmart's Dilemmas Revisited: Margins or Share, Trendy or Populist?

The 18th century British writer Samuel Johnson said that 'Nothing so concentrates the mind as the imminent prospect of the gallows.' (Or something like that – I've seen it in various forms). Johnson was no doubt right, and we can adapt it by saying that nothing so concentrates a retailer's mind like four straight quarters of declining comp-store sales.

Which brings us to Walmart; Walmart has done reasonably well during most of the recession, but has faltered a bit and at times seemed to lose direction. The recent executive changes are now beginning to be felt on the sales floor.

Late last year, I recall reading that Walmart was planning to build its margins, and Project Impact was supposed to make its stores more inviting to somewhat more upscale shoppers. Now, we are told, the emphasis will be to reverse those sales declines and grow the top-line number. Project Impact, if it's not dead, it is at least being rolled back in some regards – Action Alley is back, and so are many of the items that had been SKU-rationalized out the door.

This year, Wal-Mart returned about 300 items to shelves after initially pulling them, Simon said at a March investor conference, when he was still the operations chief. Leon Nicholas, a director at consulting firm Kantar Retail who's based in Cambridge, Massachusetts, said Wal-Mart has returned thousands more since then.

"We assume they've brought back 3,000," he said in a telephone interview. Some of the returning products have tags attached on the shelf saying, "Look What's Back."

These changes have happened pretty quickly – it was less than two months ago that Simon took over at Walmart – and the urgency of the changes is reflected in the name given the turnaround project, 3 in 30, which means getting Walmart back to where it was three years ago within thirty days.

I always worry about companies that shift strategies quickly – in the retail arena, it invariably brings back memories of Sears when they were trying desperately to stay #1. The problems are obvious: for suppliers, how can they collaboratively plan with you when they don't know if you'll be using the same strategy through the life of the plan? Your branding suffers because your customers are no longer certain who you are.

But this may be different: If it is implemented as a return to core competencies, and if they stick with it for longer than they stuck with Project Impact, those concerns will dissipate. What really impresses me is how quickly such a giant can turn (though we'll see pretty soon whether they can really implement the reversals in the allotted thirty days).

Exit question: Is Walmart lost and floundering, or just making a needed course correction? As always, we value your comments.

Is RFID (Finally) Ready for Takeoff?

How long have we been talking about RFID now? Saying that full-scale adoption is just around the corner?

Maybe we are finally getting there. Using the rule of thumb that anything Walmart does will soon be copied by just about every other retailer, we have moved much closer to the long-anticipated day, now that Walmart is testing item-level RFID tags on certain apparel items.

Starting next month, the retailer will place removable "smart tags" on individual garments that can be read by a hand-held scanner. Walmart workers will be able to quickly learn, for instance, which size of Wrangler jeans is missing, with the aim of ensuring shelves are optimally stocked and inventory tightly watched. If successful, the radio-frequency ID tags will be rolled out on other products at Walmart's more than 3,750 U.S. stores.

The story focuses on Walmart's desire to avoid out-of-stocks, which is of course a huge advantage (and has big implications for trade promotion). American Apparel is said to have seen a 14% sales increase in a similar test. That seems to probably be on the high side, and the data comes from an RFID supplier, so may be biased, but certainly we all know that out-of-stocks cost a lot of sales.

But in the long run, there are even larger possibilities. I've wondered if item-level RFID might someday eliminate checkout. Why could I not just push my cart past a reader, which totals the contents and charges me (it also, of course reads my loyalty card in my pocket, which contains an RFID chip and is tied to my credit card or checking account)?

The labor savings and other efficiencies for the retailer in this scenario are obvious, though we may never get to the point where very low cost items (chewing gum, etc) can efficiently have chips attached.

As you might imagine, what I've just described would also drive the privacy lobby nuts. Even Walmart's comparatively modest initiative is doing so.

While the tags can be removed from clothing and packages, they can't be turned off, and are able to be tracked. Some privacy advocates hypothesize that unscrupulous marketers or criminals will be able to drive by consumers' homes and scan their garbage to discover what they have recently bought.

They also worry that retailers will be able to scan customers who carry new types of personal ID cards as they walk through a store, without their knowledge. Several states, including Washington and New York, have begun issuing enhanced driver's licenses that contain radio- frequency tags with unique ID numbers, to make border crossings easier for frequent travelers. Some privacy advocates contend that retailers could theoretically scan people with such licenses as they make purchases, combine the info with their credit card data, and then know the person's identity the next time they stepped into the store.

For the present, if I were seriously concerned about this, I would remove the tags at checkout. And I assume that a simple way to disable the tags after purchase will soon be developed. In any case, I gave up on privacy long ago. Jewel knows what I like for breakfast and Amazon knows what I like to read – neither fact concerns me much.

I wonder, though, how the privacy folks would react to this promotion being run by Unilever in Brazil:

Unilever's Omo detergent is adding an unusual ingredient to its two-pound detergent box in Brazil: a GPS device that allows its promotions agency Bullet to track shoppers and follow them to their front doors.

Starting next week, consumers who buy one of the GPS-implanted detergent boxes will be surprised at home, given a pocket video camera as a prize and invited to bring their families to enjoy a day of Unilever-sponsored outdoor fun.

Having just said that I don't care much about privacy issues in retail, I must admit that I find the idea of marketers following me home from the store to be just a bit creepy – even if their intent is to give me something.

The exit question takes us back to the beginning – are we finally there? Vote and give us your comments on this question: How soon will virtually all items have RFID tags at major retailers?

Is Walmart Floundering?

Supermarket News asks a question that is probably on a lot of people's minds these days: "If Project Impact is succeeding, and shoppers still love a bargain, then what's ailing Walmart?"

While [Walmart] officials express strong confidence in Project Impact, particularly for the long term – citing multiple financial and retail successes that they insist are only just beginning – disappointing sales and store traffic results in recent months have prompted the chain to tweak some tactics and reverse course on others.

The first casualty may have been Eduardo Castro-Wright, who was seen as the heir apparent for the top job at Walmart and has been the architect for Project Impact, but was replaced recently as the boss at Walmart US. This chart, noting the first-ever annual decline in comp store sales, shows the problem:

SN notes several things that could be mere implementation problems with Project Impact – SKU rationalization that may have gone too deep (or simply cut the wrong SKUs), a failure to recognize regional differences, not being aggressive enough in emphasizing winners in the 'Win, Play, Show' strategy. Such errors are inevitable in the rollout of any new strategy, and can be tweaked along the way.

But some of the problems may be more fundamental. Walmart has sought to increase its margins recently and has allowed traditional supermarkets to close the price gap. "Walmart is still a low-price leader but it's not the low-price leader," noted retail analyst Burt Flickinger.

In another article analyzing Project Impact in The Hub, Chris Hoyt says that Walmart has allowed its operating costs to rise to a point where it no longer holds an advantage over its traditional store rivals.

The result is a significant reversal of the advantage that Walmart enjoyed in the early years: Now at 24.8 percent for Walmart versus 23.2 percent for Kroger, Walmart's gross margin is at a serious 1.6 percentage point disadvantage versus Kroger's — a difference just too big for recession-pressured competing shoppers to ignore for long.

The object lesson of the Walmart-Kroger pricing scenario is that, for whatever reason, Walmart allowed itself to deviate from its core strategy ("Always Low Prices") and thereby enabled a major competitor to get its nose under the tent.

Another way that Walmart has deviated from the strategies that built its success, according to Hoyt, is in using 'criteria to guide the Win/Play/Show segmentation, rather than relying on hard numbers, objectively applied:

How does one know why (or why not) one's category is placed in the Walmart "Win" quadrant? That's exactly the point. While Walmart does publish the criteria for its "Win" quadrant, it leaves this relatively open-ended, couched in subject-to-interpretation phrases like, "Consumers see Walmart as a credible destination" or "Volume contributes to price leadership position," and so forth.

In other words, there is no longer a fact-based approach upon which one can rely. While there are obviously certain basics that must be in place even to be considered for Walmart's "Win" quadrant, by leaving the final decision open to certain subjective evaluations, Walmart cleverly sets-up a competition among suppliers.

In this environment, "winning" will almost certainly include the extent to which category suppliers are willing to go "over and above" to help Walmart achieve its objectives. Translation: When all else is equal, adding incremental marketing or merchandising support can make the difference between being assigned to the dark-and-damp "Show" quadrant versus the sunny-and-eternally-productive "Win" quadrant.

Walmart has, in short, become much more like the retailers it has been creaming over the past few decades, a point not lost on the competitors, such as Kroger's CEO:

"Walmart is a lot more consistent with a traditional grocery-supermarket operation than it is consistent with what Walmart used to do," Dillon said. "It uses a lot more feature items. Sometimes those features are on for more than a week, but it's [still] feature items, and when you operate that way there may be items that come down in price and get a lot of publicity, but there are others that go up in price that don't get that much publicity. We see the behavior as a lot of marketing noise."

I think part of the problem is that Walmart has so changed the retail landscape that it is now the Establishment rather than the upstart, and as such it now occupies the dangerous middle. Once, that was the turf occupied by mainstream department stores, with upscale stores like Nordstrom and Bloomingdales on one side and Walmart, Kmart and Target on the other. But today, Walmart's old positioning has been taken over by Aldi and Sav-A-Lot, as well as dollar stores.

It's instructive that the latest rankings of US retailers by NRF, while still showing Walmart miles ahead of any competitor, also record big increases by the dollar stores: Dollar General moved up from 35th to 28th, Family Dollar from 56th to 45th, and Dollar Tree from 76th to 61st.

And it may not be simply that Walmart has lost its low-cost leadership, but also that, because of Project Impact, they look like they've lost that leadership. Part of the intent of the project was to look more upscale – could it be that they succeeded too well? As an executive stated, the changes "came at the cost of a sense of ‘promotional intensity' inside the stores."

The problems that people are seeing and discussing at Walmart may be only partly a result of Project Impact. Or maybe there are no real problems at all (let's not forget that the chart above shows $20b in operating income – who wouldn't like to have problems like that?) But let's make Project Impact the focus of a two-part exit question: Has Project Impact been a success? Will it be successful in the long run?

Advertising Targeting Young Kids

Last week we did a story focused on new means of reaching shoppers at the shelf, specifically 3GTV. The photo they use to show the technology is a cartoon character scooping up Kraft’s Macaroni and Cheese, with a big smile on his face. Who is this targeting? Kids, of course.

I recently heard a radio broadcast on NPR reporting about a recent study just published in the Medical Journal of Pediatrics.  It seems that when a group of 4-6 year olds were exposed to, and ate identical packaged foods (some with licensed cartoon characters on the label, some without), the children chose the cartoon character-laden packaged foods overwhelming, at a rate of 85%. So let’s take a look at those 4-6 year olds; according to the CDC,

Among pre-school age children 2-5 years of age, obesity increased from 5 to 10.4% between 1976-1980 and 2007-2008 and from 6.5 to 19.6% among 6-11 year olds.

Now I am, by no means, targeting Kraft or their Macaroni and Cheese (my own pre-schooler eats mac and cheese at least once a week), but think about the implications of having children barraged with cartoon characters on every aisle. This will make a parent’s job of trying to get junior to choose healthy foods a daunting task. On the flip side, if the industry decides to jump on Michelle Obama’s bandwagon and try to get our country’s youth focused on healthy foods, a technology like 3GTV could be very powerful. Imagine walking down the fruits and vegetable aisles with your child’s favorite character enticing them to eat healthy. Or even better, perhaps down the chip aisle, filled with baked snacks with no artificial flavors/coloring. Okay, now I’m getting carried away!

So I end with this thought. I’m not sure how I feel about little TV screens in my grocery store trying to lure me and my children to buy something. Heck, I don’t even have cable TV in my home. My motto is, and always has been, “eat some fruit” and “read a book”. But maybe if it has the right message, giving me some real benefits (WIIFM), maybe then I'll pause, watch, and buy.

How Green is Your Machine?

I just completed an article due to be published in this month’s VCF Report, about transparency throughout the supply chain. More and more, information about the financial, social and environmental impacts of consumer products are being made readily available to customers. And I am not just talking about a check-mark on the side of a box that says it’s supposed to be good for you. This is real, comprehensive data scoring about where a product came from, what ingredients are inside (in plain English), how the companies treated the employees involved in its life cycle, and the carbon footprint left behind by all parties involved. With the truth out there, available via web and phone (text or App), pricing and pretty marketing campaigns may not be enough.

When pitching your product in a world of SKU Rationalization and reduced shelf space, your now faced with whether a retailer will even allow you to do business with them. In a recent survey done by the Carbon Disclosure Project (CDP), over half of some pretty important retailers and manufacturers said they might eliminate their suppliers that cannot or will not “manage their carbon”.

I am not a fanatic naturalist, but I am a conscious consumer. I shop at many types of retail establishments (local and national stores), but like many consumers, I am swayed by the information that is available to me. Just this weekend, I tried out a new web site that provides you with all kinds of information about consumer products and found out that the popular brand toothpaste I have been using for my four year old (touted as a toothpaste for Toddlers) actually contained an ingredient that is considered controversial. And sunscreen? Again, the national brand Baby Block I had been using on my little one actually contains an ingredient that, when exposed to sunlight, becomes carcinogenic. Needless to say, I spent money I wouldn’t have normally, to replace the old products with ones I had researched and felt comfortable purchasing.

So, when faced with future product testing, package design, forecasting and allocation numbers, and pricing schedules, remember that your product SKU may be up for review in great the green machine of today’s consumer.

Are Malls Coming Back?

The National Retail Federation’s magazine had a story on what they see as resurgence by regional malls, From Doom to Vroom.


The theme is that regional malls are nowhere near as dead as articles were saying they were six months or a year ago.

“Developers have gotten more creative with the space and it’s beginning to yield fruit,” [Deloitte] says. “Essentially, they’ve gone back to the genesis of the shopping mall and its origins as a social center that blends shopping and entertainment — even housing — in an enclosed community. Mixed-use properties, versus those solely focused on apparel shops, will give consumers a reason to come back again and again.”

Sociologists have long said that the mall was an updated version of the ‘village square’, but I never really bought into that idea too much. Except that, even long ago in my youth, it was where teenagers went to promenade and flirt as, I presume, they once did in the village square. Food courts, I suppose created more of a community feel, but in recent years (even before the recession) I have seen malls that were renting space to day care centers, local libraries, extension campuses of community colleges, and even municipal offices, which is, as Deloitte says, making the mall into a social center.

I’m not sure if this was the intent, or if such changes were simply desperation moves to fill space, since the malls doing such things have most often been those on the edge. And Bill Taubman, COO of Taubman Centers, doesn’t think much of the trend:

“I want a big name like Macy’s as an anchor whenever it’s possible because department stores still have the greatest relevance when it comes to driving traffic,” Taubman says. “Adding schools, mom-and-pop shops and service providers are interesting ways to fill space, but in our experience they don’t deliver anywhere near the amount of foot traffic.”

The problem is that there aren’t enough department stores left to fill all the anchor spots available:

On the West Coast, Forever 21 has moved into several spaces once occupied by now-defunct Mervyns. Target has set up shop in spaces once occupied by department stores: It recently moved into a former Lord & Taylor store in Delaware. Costco, which as recently as five years ago, would have been deemed a most unlikely mall candidate, now operates in a handful of regional centers.

Target now has eighty-five mall locations. It once was standard that department stores had ‘no discounters’ clauses in their mall leases – but apparently they don’t have the muscle anymore. And besides, what would be the point? – the discounters are on the mall’s perimeter road anyway.

So is the regional mall making a comeback? I tend to be skeptical. I’m sure malls are doing a bit better – the economy is picking up, so just about everybody is doing better. But I think malls – which I have always looked at as oversized department stores – will follow the pattern department stores have followed over the past several decades. They suffer in recessions, and each recession they go a bit lower than they did the one before. And then they come back (to a spate of stories about ‘the resurgence of department stores’) in the recovery – but each time they come back, it is to a peak lower than the previous time.

However, whereas department stores have tried repeatedly over the years to ‘reinvent’ themselves without yet finding a reason for existence, malls still could do so – perhaps becoming centers for entertainment and social gathering as well as shopping will be their salvation.

Location-Based Trade Promo

I came across this article recently, about use of mobile devices and location-based advertising. It tells us that about a quarter of us have used mobile location-based services (such as GPS or mapping services on cell phones), and that these users “are more likely to respond to mobile advertising delivered with location-based targeting than regular ads.”

Most respondents said that they used location-based services to locate nearby "points of interest, shops, or services." What's more, roughly half of those who noticed ads during their use of a location-based mobile service took some kind of action.

A quick note – the survey was done by the Mobile Marketing Association, which means that it may not be totally free of bias.

That said, what struck me as I was reading it was that mobile location-based advertising takes us back to the original purposes behind co-op advertising (back when that was its name). Although co-op can be traced back to the late nineteenth century, it began to be a major force in marketing in the fifties and sixties, when it was positioned as a supplement to national advertising. It was recognized that, while national advertising could convince prospective customers that they needed and wanted a given product/brand, co-op could finish the process by telling them where to buy it and what it would cost. The process looked like this:


While we may have moved on to new terminology, and also moved beyond many of the old ideas that lay behind co-op advertising, the basic rules of marketing haven’t changed, and it’s fascinating to see how new technology and new media fit into the old patterns. What’s also interesting is that location-based mobile advertising offers an opportunity to perform the co-op ad function closer to the moment of truth. It is thus something of a step between an ad in traditional media and an in-store sign or display.

It seems clear to me for these reasons, that location-based ads are very much a tool that should be embraced by marketers who are seeking to tell consumers where to buy a specific product – and should therefore be an important part of trade promotion programs.

How much of this is being done so far? Let’s make that our exit question: Has your company done location-based promotions with your retailers?

Quickly Noted

Package-Goods Marketers Vow to Boost Spending
Kraft, P&G, Hershey, Heinz, and General Mills were among companies telling an analysts’ meeting last week that they intend to increase marketing spending in all areas – advertising, trade promo, couponing, and packaging – to stave off private label. Some of the increases will be substantial: Hershey increased its spending by 50% in 2009 and plans another 25%-30% this year.
Advertising Age, 18 February 2010

Walgreen to Acquire Duane Reade, Add New York Stores
The big news in the merger & acquisitions world last week was Walgreens buying their way to the top rung in New York by buying Duane Reade. Most commentary seems to hold that Walgreens had to do this to grow in NYC, especially in Manhattan, because the high cost of real estate made expansion prohibitive. The purchase catapults Walgreens from 70 stores to over 300 in the NYC area. I always thought ‘Duane Reade’ was somebody’s name, but it turns out it’s the location of the chain’s first store.
BusinessWeek, 17 February 2010

Google Ousts Coke as World’s Second-Most Valuable Brand
Google moved ahead of Coke in a ranking of brand value by Brand Finance. Walmart, not surprisingly, remains #1, with a value of $41.4b. After Google and Coke come IBM and Microsoft in the top five, followed by GE, Vodafone, HSBC, HP and Toyota. Toyota, of course, seems poised to drop a bit.
MediaBuyerPlanner, 17 February 2010a

Forever 21 Inks Deal for Former Boscov’s Space in White Marsh
Forever 21 is continuing its upsizing, begun when they purchased a slew of defunct Mervyns locations. Now, on the opposite coast, they are moving into a former Boscov’s store in Maryland. Many people say that recessions can be an opportunity for growth – I greatly admire companies that have the guts to act on those words.
Baltimore Business Journal, 16 February, 2010

Is Digital Coupons’ Rise Print Inserts’ Demise?
I try not to get too worked up over self-serving research, so a report by Coupons.com saying that digital coupons' growth outpaced FSIs by ten to one would normally not impress me. But when it’s backed up by a similar report from the Newspaper Association of America, then I take notice. Coupons.com says they served up 170% more in coupons (based on value) in 2009 than the previous year, and that 45 million Americans used digital coupons last year, of whom 13 million have given up print coupons entirely. The NAA, meanwhile, reported that “newspaper inserts are ‘under siege,’ with big retailers like Sears demanding double-digit rate cuts and the CMO of J.C. Penney's expressing concern that prepaid inserts don't reach as many younger consumers.”
Media Daily News, 17February 2010

Poll Results: Sponsor-Created Content

We discussed the TV movie Procter & Gamble and Walmart are presenting, and wondered if this sort of thing might be a new wave: “Will it become common for retailers and suppliers to jointly produce programming as advertising vehicles, just as Walmart and P&G are doing?”

• 16%: This will become very common
• 44%: It will be done to some extent, but not terribly common
• 38%: There will be only a few cases of it happening
• 2%: This will be a flop and won't be repeated

Most of our readers took a fairly cautious view. Only 2% think the idea will flop, but not a lot (16%) think it will become common – 82% took the middle of the road positions.

Follow-Ups

SKU Rationalization
This topic continues to get a lot of coverage, and is breaking into the general press – for example, this item from CNN, which included a chart on some categories Walmart is cutting back:

Of interest was that the article also brought up the trade promo angle of the story, noting that some suppliers may be forced to ‘pay to stay’:

In one recent example, according to published reports, Walmart removed Arm & Hammer liquid laundry detergent from most of its stores. But the discounter brought back the product after Arm & Hammer boosted its advertising for the product at Walmart Arm & Hammer parent Church & Dwight (CHD) did not return calls for comment. Other consumer product makers -- including Colgate-Palmolive and Procter & Gamble -- either declined comment or did not return calls. Said Dibadj, "Perhaps one consideration in which product to cut is based on which company gives [Walmart] the best deal." Citing the Hefty example, he said, "These threats can become quite aggressive, such as delisting and subsequent relisting after a compromise.”

Online CPG
We reported a few weeks ago on the CPG online shopping site, Alice.com; their CEO, Brian Wiegand, will be providing more info about selling CPG online at our May Conference. In addition, RetailWire recently ran an article and discussion about a study of several supermarket websites.

Reviewing the sites might be of interest to many of our readers (links to each are available from the RetailWire article). Five of the eight offer online shopping, though only two deliver (for a fee), with the others offering in-store pickup. It would be interesting to know what level of utilization these services get, but I get the impression these sites are more about communicating with the customer and perhaps replacing, to some extent, the traditional circular.

Creating Your Own Content
We discussed the effort by Walmart and Procter & Gamble to create a made-for-TV movie. Armen Najarian replied with this item from his blog, about Red Bull’s sponsorship of a guy who is skydiving from 23 miles. How cool is that? I’ve done it a couple times and 12,000 feet is quite enough, thank you. Check out the video on the blog.

Armen comments:

I see this as the wave of the future — brands investing in world-class content that is intimately linked to their equity and serving it straight up to consumers. Not all brands, but those like Red Bull, Porsche, Nintendo and others that have authentic products, a crystal clear positioning and a base of die-hard loyalists.

I’m not sure how many opportunities there will be for such things, and there won’t often, as Armen notes, be such a perfect marriage between an event and a brand image, but I agree that creating such events is a wonderful way to break through the clutter of traditional media and traditional events, and that brand managers should be bold in grabbing such opportunities.

Retail Price Maintenance
I’ve expressed my skepticism about the future of retail price maintenance programs (I think Congress will overturn the Leegin decision), but Sony is pleased with the results they have seen from their efforts to enforce minimum advertised price, and plan to expand their MAP programs:

Mike Fasulo, Sony executive VP and chief marketing officer, said at a press roundtable during the event that specialty dealers have embraced Sony MAP policies, which offer real penalties for non-compliance across a wider swath of products and models than … programs used in the past. "Every note I've gotten from a specialist has been a thank you, in terms of MAP," Fasulo said. He said Sony just announced the expansion of the MAP program into home audio/video as well as TV and is now studying the likelihood of expanding it into the digital imaging category, as well.