A Tale of Two Wal-Marts

Wal-Mart--a veritable headline machine that generates more press (both positive and negative) in a week than most big companies do in a year--outdid itself last week.

News broke of an enormous marketing shift, moving Wal-Mart's estimated $570 million advertising account to new agencies. There were promises to Wall Street that it would cut capital expenditures. Earlier in the week, it launched a completely redesigned Web site.

Saturday morning was saved for the most telling headline of all: Same-store sales for October rose just 0.5 percent, far below its projections of even a week ago. (That's Wal-Mart's worst month since December 2000, according to The Wall Street Journal.)

Marketers, especially those who rely on Wal-Mart to get their products into the hands of customers, are struggling to read between the headlines, and many believe that the Bentonville, Ark.-based company has a bad case of Jekyll-and-Hyde Syndrome.

"Wal-Mart is at a crisis point, and it's hitting the proverbial wall," said Burt P. Flickinger III, managing director of Strategic Resource Group, a consulting firm in New York that specializes in branded consumer goods and works closely with retailers. "They've never seen marketing as an investment. Now, the question is: 'Will Wal-Mart change its own retail rules and focus on driving demand? Or are they going to focus just on cost cutting?' "



Part of the issue is Wal-Mart's uneasy effort to move slightly upscale, stepping back from its cheesy blue smocks and dancing yellow smiley faces. After all, the financial press reported that one reason Wal-Mart is switching its massive advertising account to Draft FCB and Carat USA (a move that still has not been announced officially) is to convey qualities like value over cheapness and to execute more segmented strategies.

It's no accident that the company chose last week to announce that it's one step closer to ditching the smocks entirely--greatly expanding its test of a uniform of polo shirts and khakis, instead.

And it signed on to VNU's Project Apollo, a move signaling that it intends to get even more serious about analyzing its vast amounts of consumer data. Earlier this fall, Wal-Mart said it was abandoning its one-store-for-all-locations strategy, and replacing it with six new demographic models.

"Being the store of the neighborhood is really going to be key to Wal-Mart," Flickinger said, "and even though they have the best database of any corporation worldwide, they're still going to need branded agency and marketing partners to really help them micro-market more successfully."

But then there is Mr. Hyde's Wal-Mart, the tight-fisted strategists who are vowing to run stores with even less labor costs--a move that impresses stockholders but frightens marketers. (Whether they wear smocks or polo shirts, fewer clerks to restock shelves and follow through on merchandising plans is a big problem.) And those low labor costs keep backfiring in other ways, Flickinger said, as city councils block Wal-Mart from expanding in the urban locations it desperately needs to keep growing, and hands Wal-Mart one publicity black-eye after another.

Even more telling, during its three-day sit-down with investors last week, Wal-Mart CEO H. Lee Scott Jr. admitted that the company's latest move into "fast fashion"--the kind of apparel that would actually give the company a chance at competing with Target, or K mart--was a mistake, and that the company had moved too fast toward the trendy. "When it comes to apparel, Wal-Mart has the attention span of a strobe light," Flickinger said.

"Apparel has been a problem for Wal-Mart for years," he said--putting it a big disadvantage to its competitors. After all, women will buy sweaters in two or three colors, even if they don't need them, he said. "But people aren't going to buy more Tide and wash more clothes simply because Wal-Mart is selling it cheaper. They're not going to use more paper towels."

Right now, he added, "Wal-Mart's biggest enemy isn't any one competitor, or any one sector of the business. It's right there in Bentonville."

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