June 24, 2009 in Business

Wal-Mart trying to retain shoppers snagged during recession

Anne D’Innocenzio Associated Press
 
Associated Press photo

A customer shops in the kitchen appliances section of a Rogers, Ark., Wal-Mart. Wal-Mart’s remodeling program of its 3,600 namesake stores will lower shelves and widen aisles to give shoppers a clearer path. The renovations, which will cost from $1.6 billion to $1.7 billion this fiscal year, also will expand its electronics areas.
(Full-size photo)(All photos)

The recession steered a new type of customer to Wal-Mart – deeper in the pockets and suddenly looking for bargains. Now the world’s largest retailer has to figure out how to keep that customer when the economy recovers.

So Wal-Mart is bringing in more brand names, ditching scores of products and redesigning hundreds of stores to give them wider aisles, better lighting and better sight lines.

It’s more than a cosmetic upgrade. That new breed of customer also spends about 40 percent more than the traditional Wal-Mart shopper, and the retailer senses an opportunity to accelerate its growth.

Take Aditya Krishnan, a 42-year-old lawyer from San Jose, Calif. He used to buy only light bulbs at Wal-Mart but now finds himself spending $150 a month there, including on workout clothes, which he used to get at Macy’s. “If I am able to get good stuff at Wal-Mart, and I am able to save money, why would I change?” Krishnan asked. “I am seeing better brands, and the shopping experience is better” than before.

Wal-Mart says that’s no accident. It’s placing a big bet on the redesign of most of its 3,600 stores, started last fall. This fiscal year, it plans to redo as many as 600 at a cost from $1.6 billion to $1.7 billion.

The prototype for the remodeling includes lower shelves to make it easier to see across the store, better lighting and wider aisles. Expanded electronics areas will include interactive displays to test video games and portable gadgets.

The store now carries brands like Danskin and Better Homes and Gardens, and its electronics section stocks pricier products like Palm Inc.’s well-received new Pre smart phone.

Whether it all works, Wall Street analysts say, depends in part on how quickly the retailer can remodel and keep shoppers satisfied. Concerns about how Wal-Mart will keep its momentum have sent its stock down 13 percent this year.

The early signs are positive, putting pressure on the rest of the industry. Target Corp., whose sales have been hampered by its emphasis on nonessentials like trendy jeans, is expanding its fresh food offerings. Best Buy Co. is beefing up customer service.

“I believe a lot of what (Wal-Mart) is doing is working,” said Joseph Feldman, a retail analyst at Telsey Advisory Group. “They are a threat to everyone.”

Other discounters, including TJX Cos. Inc., which sells name-brand fashions and home furnishings, Costco Wholesale Corp. and BJ’s Wholesale Club Inc., are focusing on trying to keep customers lured by low prices during the recession.

But Wal-Mart, which only three years ago struggled with cluttered stores, long lines, stiff towels and unattractive clothing, has a bigger hurdle to clear. And it has to move fast to win over people who still have negative feelings about shopping there.

“The service still needs to be improved, and the stores are a little sloppy,” said Daniel Chou, 35, of Warren, N.J., who was at Wal-Mart to pick up a bungee cord but said he rarely shops there.

Wal-Mart, which topped $400 billion in sales last year, attracts more than 140 million customers a week. But to get them to buy more than just groceries, which account for about half of annual sales, it’s paring its product lineup and making room for better brands.

The shift risks turning off longtime customers who are looking for only the cheapest products.

Wal-Mart executives say 17 percent of the chain’s traffic growth in February came from new customers, and they’re spending 40 percent more per trip. More than half of those shoppers live in households that take in more than $50,000 a year.

While that may not be considered affluent, it’s a big departure from Wal-Mart’s core customers, of whom one in five does not have a bank account or has limited access to financial services.

© Copyright 2009 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.


Thoughts and opinions on this story? Click here to comment >>

Get stories like this in a free daily email