Walmart Losing its Grip on Key Shopper Segment

By Adam Blair
Walmart's self-branding as the Every Day Low Price retailer has been an essential element of its success. But a recent survey of Walmart shoppers indicates the vast majority – a whopping 86% – no longer believe Walmart offers the lowest prices. With the nation's economic recovery sputtering, this "identity crisis" is cause for concern at the Bentonville Giant. It also offers an explanation for why Walmart's U.S. stores have suffered seven consecutive quarters of same-store sales declines, most recently a 1.1% dip for the quarter ending April 29, 2011. (Walmart will announce its Q2 results later this month.)

According to the most recent "How America Shops" survey from WSL/Strategic Retail, Walmart shoppers are finding better deals from other retailers, including dollar stores, supermarkets and other mass merchants. Walmart shoppers, particularly its most frequent shoppers, now have increased respect for dollar stores, agreeing that their prices are lower than Walmart's, they offer more national brands, are nicer places to shop and are now an acceptable part of the retailing mainstream.

WSL conducted the Web survey in April 2011, with 1,437 respondents who qualified as Walmart shoppers, meaning they had ever shopped at Walmart.

Price competition has been a challenge for many retailers, but this change in price perception is a particularly harsh blow to Walmart. "Walmart's losing its competitive price advantage, its raison d'etre, is unique to it; EDLP has been the essence of 'who it is' for decades," says Wendy Liebmann, CEO of WSL/Strategic Retail, a retailing strategy firm. "This is not a big box issue; it's a Walmart issue."

Walmart Shoppers' Cash Crunch

Walmart's dethroning as the king of low prices also stings because its core shoppers have been largely untouched by the economic recovery, meaning their search for lower prices will continue or even accelerate. For these shoppers, the recession never really ended: 82% of Walmart shoppers say they haven't seen any improvement in their financial situation during the past year, and 70% don't expect their finances to improve in the coming year, according to the WSL survey. The credit crunch and higher gas prices have both squeezed these consumers' discretionary spending money.

"The most frequent core shoppers are still in the [Walmart] store, but they have less money to spend and so are always looking for a better deal," says Liebmann. "If Walmart can convince them that it has the best deal every day, they will hopefully not be so tempted to go elsewhere."

End of an Era?

While these indications are troubling for the world's largest retailer, it remains just that – the world's largest retailer. Even though same-store sales declined in Q1 of 2011, net sales increased 4.4%, and Walmart's international operations remain a growth engine for the company. "The world's largest retailer is certainly not going to disappear, however, it will no longer dominate the U.S. retail landscape the way it once did," said WSL president Candace Corlett.

Liebmann believes some of Walmart's recent tactical moves, such as adopting smaller formats and committing to open stores in underserved areas, point in the right direction, but she questions whether they address the central issue. "Smaller formats will certainly bring Walmart to underserved areas, and will help it compete more directly with dollar stores – a good thing," says Liebmann. "And smaller formats will provide less tempting, more convenient options to those shoppers who don't want to be tempted by the breadth of Walmart's big-box offer. But still, that doesn't resolve the fundamental EDLP credibility issue."

As to whether Walmart can stem the tide of shopper loss or attract new shoppers to replace them, Liebmann is skeptical. Shoppers with incomes that are lower than those in Walmart's current core shopper group "can't afford to shop anywhere as much, since they have been most hurt by the recession. So until they get a job – or a better job – they are really not going to be a big opportunity for Walmart."

Higher-income shoppers "really need to be dazzled by great values for them to shop more often again at Walmart, for example with electronics, flat screen TVs, toys, etc.," she adds. "They are potential shoppers again – but the product and the deal must be a great value. In the end it all comes back to EDLP and even more what we call EDBV, Every Day Better Value."

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