• by Sarah Mahoney  @mahoney_sarah, September 12, 2006

Wal-Mart Stores Inc. is fighting an image battle on many fronts these days. The importance of the issue is borne out by changes it is considering, which are as far-reaching as a name change for specialty stores it is testing in certain markets.

Late in August, Wal-Mart began testing two ads more suited to a Senate campaign than a neighborhood retailer--asserting itself as a good employer, a good corporate citizen, and a company that saves the average American family $2,300 a year. Within days, Wal-Mart Watch, a union group, filed formal complaints with the attorneys general of Arizona and Nebraska, where the ads are running--citing fraud and deceptive trade practices.

Just this week, the company narrowly escaped another setback, when Chicago Mayor Richard Daley issued his first veto in 17 years, shooting down a "living-wage ordinance" that local aldermen had passed. The bill would have required big box retailers to pay workers $10 an hour by 2010, as well as $3 per hour in benefits. Wal-Mart is building its first Chicago store.

So while there's no question that an image war is going on, there is a question about whether Wal-Mart can win it.

"The tide is working against Wal-Mart right now," said Robert Dilenschneider, chairman of the Dilenschneider Group, which advises corporations on public relations strategy. "Ads can help you, but Wal-Mart has a problem locally, where it does business, and nationally, in Washington. Right now, being big is not perceived as a good thing by Americans."

Perhaps not so coincidentally, Wal-Mart has announced a new marketing strategy that might make it seem a little less monolithic. At the Goldman Sachs Global Retailing Conference, President and CEO Eduardo Castro-Wright said the company will back away from its one-size-fits-all store strategy and retool its more than 3,200 discount stores and super-centers into six new varieties.

Segmented by income, ethnicity and lifestyle, each store will offer a differently edited selection of merchandise--aimed either at Hispanics, African-Americans, baby boomers/empty nesters, affluent, suburban or rural shoppers.

At one Hispanic store in the Houston area, for example, it's not only the dry-goods and groceries that are different. The company has brought in a Mexican firm that produces authentic baked goods from scratch. This unusual move has yielded encouraging initial results, Castro-Wright told investors. Operating margins in that store are 250 basis points higher than comparable stores.

The Bentonville, Ark.-headquartered retailer has invested in new research to evaluate its brand equity. It has not ruled out changing the names of the segmented stores, Castro-Wright said.

Wal-Mart did not respond to calls regarding its good corporate citizen image ads. And so far, Wal-Mart Watch spokesman Nu Wexler says there has been no response to the group's request that the ads be squashed.