More Rollbacks: Wal-Mart Challenges Continue

by Diane Frederick, CEO of Blueocean Market Intelligence

 Wal-Mart’s same-store sales in the United States fell 1.1 percent in the first quarter of this year, making it the 8th straight quarter of declining same-store sales for Wal-Mart. The company’s own sales data and projections are not fully accessible to suppliers, leaving many to wonder, “What’s happening at Wal-Mart?”

As such, the team at Blueocean Market Intelligence created a Shopper Behavior Monitor to investigate how and why Wal-Mart shoppers are changing their shopping habits.

In the first wave of the study, fielded in September 2010, Blueocean found that customer loss, price competition and Project Impact, a remodeling and reorganizing effort designed to streamline the store and attract more affluent shoppers, negatively affected 2010 sales compared to 2009. The second wave, fielded in April 2011, was conducted to discover how Wal-Mart customers were responding to efforts to reverse Project Impact, as well as the continued slow economic recovery.

In Wave 2, we asked Wal-Mart customers if their shopping habits have or will change from the fourth quarter in 2010 versus the first quarter in 2011, and the next six months versus current period.

Our study found that the overall state of the economy continued to negatively affect customers’ willingness to shop and spend. Additionally, high gas prices, increasing price pressure and negative impressions about the Wal-Mart shopping experience are all impacting Wal-Mart shopping behavior.

Wal-Mart Goes The Way Of The Greater Economy

When asked why they are spending less at Wal-Mart, the majority of customers cite universal spending cuts as their main reason. Also, many shoppers, including Wal-Mart’s top customers, are reducing their Wal-Mart shopping trips, in part due to high gas prices and an ability to find bargains closer to home.

Customers remain pessimistic about the state of the economy and don’t expect much improvement in the next six months. Most expect to maintain spending at Wal-Mart, but many plans cut at other channels, including grocery stores.

Wal-Mart Is Facing Price Pressure Across Departments, Especially In Grocery

The majority of Wal-Mart’s Grocery shoppers maintained their grocery spending in the first quarter of 2011, compared to the previous quarter. Among those making changes to their spending habits, a greater number increased spending than decreased. This is positive news for Wal-Mart, especially compared to significant spending and trip frequency reductions noted in other more discretionary departments.

However, Wal-Mart customers also increased their grocery spending at rival low-priced outlets, including dollar stores and limited assortment retailers. While these channels represent a small share of total grocery spending, Wal-Mart’s customers made bigger spending increases in these channels compared to their increases at Wal-Mart. Grocery stores also saw a small gain in share.

Opinions about Wal-Mart’s price competitiveness weakened in this wave compared to the last. Fewer grocery shoppers call the store the “low price leader” or say Wal-Mart offers “good value for money,” compared to the 2010 wave of the study. Additionally, nearly a quarter of those who made grocery department spending cuts said that other retailers’ pricing and promotions are attracting them to their stores more often. A third of these shoppers say competitors are more affordable, up nearly 10 percent.

Maintaining grocery customers’ loyalty and responding quickly to attempts to undercut prices will be critical to Wal-Mart’s future success. While customers expect their spending at a dollar and limited assortment stores to moderate in the next six months, prolonged economic difficulties provide opportunities for these channels to gain share.

Customers Don’t See Improvements To Wal-Mart Shopping Experience

In the fall of 2010, Wal-Mart began reversing its Project Impact program. Since then, the company has reintroduced items taken off the shelves, refocused signage on price rollbacks, and runs TV ads touting their commitment to employee satisfaction and opportunity. Despite these efforts, customers’ impressions of the Wal-Mart shopping experience haven’t improved. Ratings for Wal-Mart’s variety, organization, and customer service remain low. Only about one in three think Wal-Mart is better organized or more fun to shop than other retailers. Less than half think Wal-Mart has a better variety of brands in stock.

Wal-Mart’s Future Performance

Wal-Mart’s ability to continue to capture market growth in the grocery sector is dependent on its ability to quickly respond to aggressive pricing at other local stores, including the dollar, limited assortment, and grocery outlets. If the economy continues to falter and personal finances remain tight, Wal-Mart will have difficulty reversing negative sales trends. Building brand loyalty and showcasing the advantages of buying groceries and other goods at Wal-Mart, versus other stores, is critical as Wal-Mart’s price leadership continues to be challenged.