The More Expensive Side of Wal-Mart

Have you seen the news? Wal-Mart is going to show us its more expensive side. http://www.wfaa.com/sharedcontent/dws/bus/stories/032206dnbuswalmartlab.7b6ef28.html

In Texas, Wal-Mart opened a new store today to see if they can entice customers with a more glamorous layout, snazzy employee outfits and 1,500 new premium-priced goods. All this with the Wal-Mart brand name.

It’s true! The new store has hardwood floors, halogen lights, a sushi bar, and $500 bottles of wine. Employees will ditch aprons and don navy Polos and khakis.

So will shoppers flock to this new paradise? Will Wal-Mart suddenly be synonymous with everything from cheap detergent to rare Bordeaux? I think not.

You can’t appeal to everybody. No brand can stand for everything. Wal-Mart is the world’s largest retailer. They own “low prices” in the mind. All the radical store improvements that Wal-Mart is planning in Texas go against the philosophy of being the place to save money. Fancy stores mean fancy prices. Plain stores mean cheap prices.

The notion that there are two types of customers, low end and high end, is a fallacy. The same customers will shop in different stores for different things at different price points on different occasions.

A customer might buy basics at Wal-Mart to save money, cheap fashionable clothing at Target, bulk items at Costco and splurge at Saks on a designer dress. The customer doesn’t want to nor will she or he accept one store to sell them everything.

Customers want choice in stores as well as products. They want to choose what store makes sense for each shopping occasion.

Cheap coffee on the go from McDonalds, expensive coffee at Starbucks to relax and read the paper. One coffee drinker, two occasions. Having a cup of coffee and sticking to a plastic seat while kids scream around you is not the ideal coffee-shop atmosphere. People pay for the brand experience and perception as much as they pay for the product.

Compare telling your friends you got the sushi and wine for the party at Wal-Mart vs. telling them you bought it at Whole Foods. I think you will get two very different reactions.

For Wal-Mart, attempting to change the meaning of its brand is a lose-lose proposition. It has the potential to turn-off its existing core customer who might feel uncomfortable in a store with $500 bottles of wine. And it will dilute the power of its low price leadership position in the mind.

Sears has tried this strategy and failed. Sears is the leader in hard goods (tools, car batteries and major appliances) so they figured “We got the guys shopping here, let’s get the ladies.” And they launched the “Softer Side of Sears,” campaign.

With a store full of designer clothes, did Sears attract many women over to its softer side? Nope. It just left less room for the guys to be guys gawking at big tools. Trying to appeal to both sides just diluted the brand. Now Home Depot is the place for tools and Target is the place for clothes.

Moving the brand upmarket didn’t work for Sears and it’s unlikely to work for Wal-Mart. I predict consumers will flatly reject the new, more expensive side of Wal-Mart.

Will a line extension work for your brand? Here are my answers to some question you might have. (I answered the same questions after Wal-Mart decided to move into hard liquor.)

1. Does the line extension go against the core meaning of your brand?

Wal-Mart is cheap. Expensive products and fancy stores certainly go against the core meaning of the brand. Just like gourmet coffee and McDonald’s don’t mix. Once a brand has such a strong meaning in the mind of the consumer, you risk alienating existing customers by making drastic changes.

2. Does the extension overly complicate your business model?

What Wal-Mart does, it does very well. Squeezing suppliers on price and running a cheap company. Premium, expensive and fancy products all go against that model.

3. Do focused, successful competitors exist?

Wal-Mart already has plenty of competition with Target and Costco.

4. Will extending the line again further complicate your product line to the point of insanity?

In order to add the 1,500 new high-end products to the new Wal-Mart they had to get rid of guns and other products from lawn & garden, fishing, camping and the automotive departments. That could further irritate core customers who have come to expect such items. Making your core customers think you are too good for them is not a good idea.

5. Would the extension be better off as a new brand?

If Wal-Mart truly wants to explore a more upscale store, they should do it with a new brand name. The Wal-Mart name has too much baggage. When your brand is so powerful and well-known, change is not possible.

Moving the Kodak brand from film to digital, for example, is very difficult. But a new brand for the new category can work extremely well. Look at Lexus and Toyota.

For more about what I think about the Wal-Mart brand. Check these out:

Wal-Mart tried to improve its fashion image by advertising in Vogue magazine: http://ries.typepad.com/ries_blog/2005/08/wacky_walmart.html

Wal-Mart went against its conservative corporate image and introduced hard alcohol into its stores: http://ries.typepad.com/ries_blog/2005/08/walmart_gets_dr.html

On TV: Today I was interviewed by Jane Wells for CNBC and I will be discussing Wal-Mart again Thursday morning on CNBC at 6:30 EST.

Comments

[Yuta]

Hi Laura.

I'm Yuta from Japan and am fan of your books. This is my first time to leave comment.

■Brand Identity / Consumer’s Perception

Just as Wal-Mart gives people ingrained perception such as ‘everything is cheap’, so companies consciously or unconsciously give a certain perception. From this point of view, I’d like to bring up the matter of brand identity / consumer’s perception with one example of i-Pod. As you know, Apple has a tremendous success with i-Pod, and many are discussing the reason for it. In my opinion, one of the reasons for its success is that Apple deeply understands its own brand identity / consumer’s perception. People consider Apple as creative, innovative, unusual, unique, and so on: Macintosh is a good example. Therefore, the reason for i-Pod’s success is that “i-Pod was produced by Apple”. i-Pod’s simple and unique design, innovative size and function, and creative concept are absolutely connected to its own brand identity / consumer’s perception. I believe that if i-Pod is produced by TOSHIBA, not by Apple, it never succeeds at the same level as Apple, even though it has same design, size, function, etc,. From this conclusion, what Wall-Mart try to do completely contradicts its own brand identity / consumer’s perception, so the result would be easily predictable.

[cal]

I wish you'd quit trying to make Walmart smart, Laura. I like having stores around to shop at that aren't Walmart owned.

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Fun thing #55 of 68 fun things to do at Walmart:

55. Ask other customers if they have any Grey Poupon.

http://www.ehumorcentral.com/Directory/Jokes/1218.html

[Mack Collier]

Laura I thought that comment was hilarious! I just hate that I missed it!

[Jim]

I hope CNBC will make it available online i the near future. I would realy like to see it...hope Wal-mart will learn it soon. In the book The origin of brands you predicted Porsche Cayenne was not a wise extension. I saw in a newspaper some time ago Porsche did launce Cayman (not a suv) to make up for dropping sales of the Cayenne model....ones againg you were right...by the way it is the best book I have ever read.

[Laura]

"Superty-duper!" Yes, that was me. Gosh I still can't believe I said that on live TV. Thanks for watching.

[Mack Collier]

Laura I watch CNBC but missed your comments this morning. They just showed a clip of a woman on there saying that the new store shouldn't use the Wal-Mart name, and mentioned how Toyota used Lexus instead of 'Superty-duperty Toyota' LOL Was that you?

[Laura]

Thanks Mack, smart and funny comments!

You are right, egos are involved. They think they can do it "better" where others have failed.

But it is not execution that made Sears fail in soft good it was the strategy.

[Mack Collier]

"All this with the Wal-Mart brand name."

I heard this story, and my first thought was that if they keep the Wal-Mart name, that this will never work. My second thought was that if they do, Laura will quickly tell us exactly why it won't work. ;) As you said, Wal-Mart is 'cheap' and 'low cost', and upscale is neither of these things.

Why do companies keep thinking they can chart waters that have sunk others? Is it purely ego?